ECON 1 Lecture Notes - Lecture 4: Economic Surplus, Invisible Hand, Economic Efficiency

• School: UC-Irvine
• Department: Economics
• Course: ECON 1
• Professor: George Sarraf

Document Summary

Studies how the allocation of resources affects economic well-being. Maximum amount the buyer will pay for that good. Amount a buyer is willing to pay minus the amount the buyer actually pays. Value of everything a seller must give up to produce a good. Measure of willingness to sell: produce and sell the good/service only if the price > cost. Amount a seller is paid for a good minus the seller"s cost of providing it. Consumer surplus = value to buyers - amount paid by buyers. Producer surplus = amount received by sellers - cost to sellers. Total surplus = value to buyers - cost to sellers. The goods are consumed by the buyers who value them most highly. The goods are produced by the producers with the lowest costs. Raising or lowering the quantity of a good would not increase total surplus. Takes all the information about buyers and sellers into account.