ECON 1B03 Lecture Notes - Lecture 5: Root Mean Square, Excludability, Coase Theorem

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

Document Summary

Economic welfare: bene ts consumers and producers receive when participating in the market (buying and selling) Willingness-to-pay: the maximum amount a buyer will pay for a good. Area above cost price under the demand curve (normally a triangle) Willingness-to-sell: the lowest price a supplier will take to produce a good and offer it for sale. Area below the selling price and above the supply curve. Consumer surplus= value to buyers - amount buyer pays. Producer surplus= amount sellers receive - cost to sellers. Total surplus = value to buyers - cost to sellers. Deadweight losses: a loss in total surplus when the quantity traded is less than what would be traded when the market is in competitive equilibrium. You can only receive surplus if you are actually buying or selling a good! Externalities: bene ts that people may enjoy or costs that people may suffer from things that happen in the market that they had nothing to do with.