ECON 1B03 Lecture Notes - Lecture 6: Excludability, Coase Theorem, Social Cost

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Economic welfare participating in market: if price goes down, more consumers willing to buy, measures value of good, also called reservation price, consumer surplus if good is less than reservation price. Economic welfare benefits that consumers and firms receive by. Willingness-to-pay maximum amount buyer will pay for good. Consumer surplus area under demand curve above selling price. Willingness-to-sell lowest price supplier willing to produce good and sell. Producer surplus area above supply curve under the selling price: value to buyers amount buyer pays, amount seller receives cost to sellers. Value to buyers cost to sellers. Free markets do 3 things: give goods to buyers who are willing to pay highest price, producers with lowest price get demand for good, produce quantity of good that maximizes total surplus. Deadweight losses: market is not always in competitive equilibrium, loss in total surplus is quantity traded is less than market in competitive equilibrium.