ECON101 Lecture Notes - Lecture 7: The Planners, Economic Surplus, Demand Curve

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ECON101 Full Course Notes
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ECON101 Full Course Notes
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7: consumer, producers & the efficiency of markets. Producer surplus can be computed by finding the area below the price and above the supply curve. An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient. Policymakers are often concerned with the efficiency, as well as the equity, of economic outcomes: the equilibrium of supply and demand maximizes the sum of consumer and producer surplus. That is, the invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently. Markets do not allocate resources efficiently in the presence of market failures such as market power or externalities. We begin our study of welfare economics by looking at the benefits buyers receive from participating in a market. Willingness to pay: the maximum amount that a buyer will pay for a good. Wtp measures how much the buyer values the good.

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