ECO 1302 Lecture Notes - Lecture 7: Deadweight Loss, Price Elasticity Of Demand, Economic Surplus
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13 Feb 2018
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The difference between the current market price and cost of production for the firm. The total loss of producer and consumer surplus from underproduction or overproduction. Potential causes of deadweight loss from under- and overproduction. Competitive markets are efficient because when supply and demand interact freely, markets produce what people want at the least cost. There are a number of sources of market failure: Monopoly power given firms the incentive to under produce and overprice. The model of supply and demand tells us a good deal about how a change in the price of a good affects behaviour. But knowing the direction of a change in not enough. Economists measure market responsiveness using the concept of elasticity. A general concept used to quantify the response in one variable when another variable change. The ratio of the percentage change in quantity demanded to the percentage change in price. Ped= (%change in quantity demanded) (%change in price)
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