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Lecture 40

ECON 1010 Lecture 40: Lecture 40

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ECON 1010
Laura K.Brown

oS82 1. The gains from trade in a market are like a pie to be distributed among the market participants o Efficiency is whether the pie is as big as possible o Equity is how the pie is sliced and how the portions are distributed among society – harder to evaluate because what is “fair” is subjective 2. Efficiency is the goal, even though policy makers in the world care about equity too Evaluating the Market Equilibrium: 3. Consumer surplus equals the area above the price and under the demand curve, and producer surplus equals the area below the price and above the supply curve 4. The total area between the supply and demand curves up to the point of equilibrium represents the total surplus in the market 5. These observations lead to two insights about market outcomes: 1. Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay 1. Free markets allocate the demand for goods to the sellers who can produce them at least cost 2. Given the quantity p
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