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Lecture 39

ECON 1010 Lecture 39: Lecture 39

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ECON 1010
Laura K.Brown

o|82 Producer surplus measures the well-being of sellers What do CS, PS, and Total Surplus Measure?: 1. CS = (value to buyers) – (amount paid by buyers) o CS = willingness to pay – price o CS measures the benefit buyers receive from participating in the market – more utility in the system 2. PS = (amount received by sellers) – (cost to sellers) o PS = price – cost 1. PS measures the benefit sellers receive from participating in the market 3. Total surplus = CS + PS 1. TS measures the total benefit/gains from trade in a market o More surplus = good thing o Less surplus = bad thing The Market’s Allocation of Resources: 1. Consumer surplus and producer surplus are the basic tools that economists use to study the welfare of buyers and sellers in a market 2. In a market economy, the allocation of resources is decentralized, determine
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