Xid-5762004_2 - Thursday Sept 15 1 What do the various parts of the supply/demand diagram represent a Price x Quantity = Total Revenue or total

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T hursday, Sept. 15 1 . What do the various parts of the supply/demand diagram represent? a. Price x Quantity = Total Revenue, or total expenditure b. TR -Total cost = profit c. Area under demand curve reflects benefits to demanders. d. Area under supply curve reflects benefits to suppliers. e. Area below demand curve and above p: consumer surplus ; represents benefit of participating in a market. f. Area above supply curve and below p: producer surplus represents total variable cost of production g. Consumer surplus + producer surplus = total surplus ; total net benefits generated by the market. h. Area above supply curve and below p: producer surplus represents total variable cost of production i. Consumer surplus + producer surplus = total surplus ; total net benefits generated by the market. 2 . Market Criteria – How do we explain behavior of people in markets? How do we evaluate the results of market transactions? a. Efficiency: What is efficiency? – Generally, using resources in such a way that no additional benefit can be derived from their use – suggests resources have been used in a way to provide maximum benefit, satisfaction, or profit; suggests relationship between marginal benefit and marginal cost. If it is possible to redistribute goods, services, resources, to make one person, group, firm in an economy better off without making anyone else worse off, then status quo situation is inefficient. Static efficiency - efficiency at a particular point in time. Criterion: maximization of net benefit; also known as Pareto optimality, or Pareto efficiency; allocation of resources cannot be rearranged to benefit some without making others worse off. 1
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Dynamic (or intertemporal) efficiency - efficiency over several time periods. Criterion: maximization of net present value of benefits or profit over time.
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This note was uploaded on 04/05/2012 for the course ECP 3302 taught by Professor Staff during the Fall '11 term at Florida State College.

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Xid-5762004_2 - Thursday Sept 15 1 What do the various parts of the supply/demand diagram represent a Price x Quantity = Total Revenue or total

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