EC120 Chapter Notes - Chapter 7: Market Failure, Economic Surplus, Demand Curve
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EC120 Full Course Notes
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Welfare economics: the study of how the allocation of resources affects economic well-being. Willingness to pay: the maximum amount that a buyer will pay for a good. Co(cid:374)su(cid:373)er surplus: a (cid:271)uyer"s (cid:449)illi(cid:374)g(cid:374)ess to pay (cid:373)i(cid:374)us the a(cid:373)ou(cid:374)t the buyer actually pays. Using the demand curve to measure consumer surplus. At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer, the buyer who would leave the market first if the price was any higher. The area below the demand curve and above the price measures the consumer surplus in a market. Consumer surplus is a good measure of economic wellbeing if policymakers want to respect the preferences of buyers. Produ(cid:272)er surplus: the a(cid:373)ou(cid:374)t a seller is paid for a good (cid:373)i(cid:374)us the seller"s (cid:272)ost: measures the benefit the sellers of participating in a market. Using the supply curve to measure producer surplus.