23115 Lecture Notes - Lecture 3: Demand Curve, Deadweight Loss, Economic Surplus
Document Summary
Application of the cost of taxation: consumer surplus. Willingness to pay = measure of the buyers value of the good. Consumer surplus = willingness to pay amount actually paid. Market demand curve represents buyers willingness to pay. Total consumer surplus = area above market price and below demand curve. = value consumers put on the good: change in price affects consumer surplus. Higher the wellbeing of market participants = desirable market outcome: producer surplus. Profit = amount seller is paid sellers cost (opportunity cost) Willingness to sell = lowest price they would accept. Marginal seller = first person to leave the market if the price were any lower (jasper) Market price = (total ps = area below the market price & above s curve: total surplus and market efficiency. Total surplus = cs + ps = value to buyers cost of sellers (net benefit) The social planner would choose the quantity where the supply and demand intersects.
