Econ Notes 7 Welfare Economics

Econ Notes 7 Welfare Economics - Maximized at the...

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Macroeconomics Ch 7 Welfare Economics 26/09/2007 20:21:00 Welfare Economics How allocation of resources effects the economic wellbeing of everyone in  society Consumer Surplus  The sum for every consumer of the price they are willing to pay – the price  they paid QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture. the area under the demand curve above the price what a consumer gains from participating in a market Producer Surplus The sum for every producer of the price received for a good – the cost of  production
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QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture. the area under the price over the supply what producers gain from participating in a market Total Surplus The producer surplus + the consumer surplus  Value to buyers – cost to sellers  QuickTime Ø and a TIFF (Uncompressed) decompressor are needed to see this picture.
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Total benefit to society
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Unformatted text preview: Maximized at the Equilibrium Efficiency o Maximizes total surplus o Always at the equilibrium (without market failure) o o Supply = marginal cost o Demand = marginal benefit o Up until the equilibrium the marginal benefit outweighs the marginal cost but after the equilibrium the cost is greater than the benefit Dead Weight loss o Equilibrium Total Surplus Total surplus with price setting o QuickTime and a TIFF (Uncompressed) decompressor are needed to see this picture. o gone = dead weight loss 2 4 6 8 10 12 supply Demand Market Failures Monopoly o Maximize producer surplus o Hurts consumer Externality o Social cost An added cost to society that the producers dont have to pay but still shifts the supply curve left for the purposes of cost benefit to society 26/09/2007 20:21:00 26/09/2007 20:21:00...
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Econ Notes 7 Welfare Economics - Maximized at the...

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