Class Notes (839,626)
Canada (511,431)
Economics (966)
ECO1104 (229)
David Gray (107)

Oct 31 2013.docx

5 Pages

Course Code
David Gray

This preview shows pages 1 and half of page 2. Sign up to view the full 5 pages of the document.
ECO 1104 B Oct 31th, 2013 Halloween YUJIE YI #7038840 Figure 7-4 The Supply Curve  Producer surplus = the actual price received – the willingness to produce (and sell)  The area below the price yet above the supply curve measures the producer surplus in a market Figure 7-5: Measuring Producer Surplus with the Supply Curve - The height of the supply curve gives sellers willingness to produce  It is a measure of producer welfare, and it is 0 for the last unit produced and sold, and positive for all of the previously produced and sold units  An increase in price received raises the level of producer surplus, while a decreases lowers it Figure 7-6: How the PriceAffects Producer Surplus Market Efficiency Consumer surplus and producer surplus may be used to address the following question: - Is the allocation of resources determined by free markets in any way desirable?  Some would say no, while others would say of course Recall: CS = willingness of demanders to pay – requirement to pay Recall: PS = price received by producers – willingness of suppliers to supply Total surplus or social surplus = CS + PS = (willingness of demanders to pay – requirement to pay) + (price received by producers – willingness of suppliers to supply) - The middle 2 terms cancel out 1/5 TS = willingness of D to pay (value to buyers) – cost incurred by S Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society (MIDTERM) - Note how the welfare of consumers is weighted equally with the welfare of producers  Each economic actor, regardless of which side of the market that they are on, counts as one In addition to market efficiency, one might also care about equity – the “fairness” of the distribution of well-being among the various buyers and sellers - We won’t talk about the equity, we only care about the efficiency The next diagram shows the level of TS given a S & D equilibrium Figure 7-7: Consumer and Producer Surplus in the Market Equilibrium - Total Surplus = Consumer Surplus + Producer Surplus - Areas in the right aren’t being produce. The only relevant area is in the left (grey and orange) 3 Points Regarding Market Efficiency  The S & D equilibrium allocates the supply of goods to the buyers who value them most highly, as measured by their willingness to pay as reflected in the height of the D curve  At the same time, the S & D equilibrium allocates the demand for goods to the sellers who can produce them at least cost, as reflected in the height of the S curve  The S & D equilibrium consists of the quantity of goods that measures the sum of consumer and producer surplus, and is therefore efficient - As shown in the next graph, at lower levels of output, value to demanders > cost to suppliers, so more should be produced  Because the valuation of consumers’point of view is higher than the
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.