ECO101H1 Lecture Notes - Lecture 11: Economic Surplus, Economic Equilibrium, Market Price

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: Jessica Burley

Document Summary

Producer surplus: amount seller is paid - seller"s costs (profit) Area below price and above supply curve. Individual a will work for /hr (opportunity cost) If market price (wage) is , then: a,b,c will work (d will not work) Producer surplus measures the benefit to suppliers of participating in a market. Consumer surplus measures the benefit to consumers of participating in a market. Price buyer would be willing to pay - market price. Allocatively efficient level of output: level of output where total surplus (consumer + producer) is maximized. Key result: equilibrium output in a competitive market is allocatively efficient. A: consumer surplus + producer surplus = total surplus. To left of qe, value to buyer > cost to sellers. To right of qe, value to buyer < cost to sellers. If output of a good is less than output in a competitive market, output is too low and is.