ECON 1 Lecture Notes - Lecture 10: Economic Surplus, Laissez-Faire, Economic Equilibrium
Document Summary
Market economy: allocation of resources is decentralized. Determined by the interactions of many self-interested buyers/sellers. Policymakers are about equality, but we"re focusing on efficiency. Total surplus = (value to buyers) - (cost to sellers) Allocation of resources is efficient if it maximizes total surplus: Goods consumed by buyers who value them most highly. Goods are produced by producers with the lowest costs. Raising/lowering quantity of a good would not increase total surplus. In the eyes of the market, effects of taxing too much one way or the other: Tax too little = not enough revenue. Tax too much = low incentive to work, consumers don"t want to buy, etc. Buyers who value goods most highly (willing to buy at higher price) are ones who will consume it. Buyers from 0-15 in quantity will value the good at least as much as the price, will purchase. Buyers unable and unwilling to buy, then we would not get that good.
