Oct 5, 2011
Economics – Lecture #8
Resource Allocation Methods
Scare resources might be allocated by:
o People who can afford an item, and who want to buy it
o Someone says this resource will be used for this purpose
o Voting for something
o The participants are rewarded for their hard work and effort
o Prizes to the winner
o Resources getting shared equally
o Randomly chosen who gets the resources
o Have to have certain characteristics in order to get the resources/job
o Can be used in a positive or negative way
Demand and Marginal Benefit
Demand, Willingness to Pay, and Value
Value is what we get, price is what we pay
The value of one more unit of a good or service is its marginal benefit
We measure value as the maximum price that a person is willing to pay
But willingness to pay determines demand
A demand curve is a marginal benefit curve.
Individual Demand and Market Demand
The relationship between the price of a good and the quantity demanded by one
person is called individual demand.
The relationship between the price of a good and the quantity demanded by all
buyers in the market is called market demand. Nicole Wallenburg
Oct 5, 2011
Consumer surplus is the value of a good minus the price paid for it, summed
over the quantity bought.
It is measured by the area under the demand curve and above the price paid, up to
the quantity bought.
Supply and Marginal Cost
Supply, Cost, and Minimum Supply-Price
Cost is what the producer gives up, price is what the producer receives.
The cost of one more unit of a good or service is its marginal cost.
Marginal cost is the minimum price that a firm is willing to accept.
But the minimum supply-price determines supply.
Individual Supply and Market Supply
The relationship between the price of a good and the quantity supplied by one
producer is called individual supply.
The relationship between the price of a good and the quantity supplied by all
producers in the market is called market supply.a 30.00
30.00 100 50 150 pizzas
Max's S- MC
Market S MSC
10.00 Mario is willing
to supply the 100th
to supply the 150th
to supply the 50th
50 100 150 200 250
50 200 250
Quantity (pizzos p
Quantiy lpizzas per month)
Quantity (pizzas per month)
(b) Mario's supply
(b) Market supply
(a) Max's supply
Market S- MSC
25.00 Max's producer