ECON 1 Lecture Notes - Lecture 9: Economic Equilibrium, Economic Surplus, Equilibrium Point

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Consumers many times are willing to pay more than the market price, if the price is below their maximum willingness to pay. Producers likewise are willing to sell for less than the market price, if the price is above their minimum willingness to sell. Voluntary exchange creates value and can make everyone involved better off. The consumer surplus can be calculated by summing up individuals" consumer surplus. If there is more than one customer at each plus, simply multiply the number of customers at each price by individual surplus. Producer surplus the producer surplus can be calculated by summing up individuals" producer surplus. The market equilibrium is the point that maximizes total well-being (total surplus) of all participants in the market. lowering the price from the market equilibrium price decreases total surplus. When an artificial price is imposed on a market, surplus is transferred between consumers and producers.

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