ECON 201 Lecture Notes - Lecture 5: Reservation Price, Economic Surplus, Deadweight Loss

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ECON 201 Full Course Notes
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ECON 201 Full Course Notes
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It is useful to characterize market equilibrium in terms of the behaviour of marginal participation. The very last buyer and the very last supplier, or the very last unit supplied and demanded: key assumption that the supply curve represents the full cost of each additional unit of production. It follows that, at the equilibrium, the value placed on the last unit purchased equals the cost of supplying that unit. Elasticities revisited: elasticities are important in determining the size of deadweight loss of a tax. 5. 4 market failures negative externalities: externality is a (cid:271)e(cid:374)efit or (cid:272)ost falli(cid:374)g o(cid:374) people other tha(cid:374) those i(cid:374)volved i(cid:374) the a(cid:272)tivit(cid:455)"s market. If there was no protection firms would invest in r&d which is a real engine for economic growth: subsidies are another form of corrective action. they can be thought of as a negative tax. 5. 7 climate change, the environment and policy.

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