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Lecture #8 - Oct 5.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Michael Parkin
Semester
Fall

Description
Nicole Wallenburg Mr. Parkin Economics Oct 5, 2011 Economics – Lecture #8 Resource Allocation Methods Scare resources might be allocated by:  Market price o People who can afford an item, and who want to buy it  Command o Someone says this resource will be used for this purpose  Majority rule o Voting for something  Contest o The participants are rewarded for their hard work and effort o Prizes to the winner  First-come, first-served o  Sharing equally o Resources getting shared equally  Lottery o Randomly chosen who gets the resources  Personal characteristics o Have to have certain characteristics in order to get the resources/job  Force 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 Mr. Parkin Economics Oct 5, 2011 Consumer Surplus  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 30.00 100 50 150 pizzas Max's S- MC Market S MSC S- MC 25.00 a 25.00 25.00 50 20.00 100 pizzas 0.00 20.00 15.00 10.00 10.00 Mario is willing 0.00 to supply the 100th to supply the 150th to supply the 50th for for $15 for $15 5.00 5.00 5.00 50 100 150 200 250 50 00 50 200 250 0 50 50 250 350 Quantity (pizzos p month) Quantiy lpizzas per month) Quantity (pizzas per month) (b) Mario's supply (b) Market supply (a) Max's supply 3000 30.00 0.00 Market S- MSC 25.00 25.00 Max's producer 20.00 surplus. 15.00 0.
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