ECO101H1 Lecture Notes - Lecture 5: Economic Surplus, Demand Curve, Opportunity Cost
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ECO101H1 Full Course Notes
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Consumers, producers, and the efficiency of the markets. Welfare economics: studies how the allocation of resources affects economic well-being. Buyer"s willingness to pay: (for a good) the maximum amount the buyer will pay for that good. Wtp measures how much the buyer values the good. At any q, the height of the d curve is the wtp of the marginal buyer, the buyer who would leave the market if p were any higher. Consumer surplus: the amount a buyer is willing to pay minus the amount the buyer actually pays. If wtp < p, then cs = 0. Total cs equals the area under the demand curve above the price, from 0 to q. For a smooth curve, there would be a triangle: area = base * height / 2. Cost: the value of everything a seller must give up to produce a good (i. e. , opportunity cost).