ECO101H1 Study Guide - Pareto Efficiency, Allocative Efficiency, Natural Monopoly

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: Gustavo Indart

Document Summary

Consumer surplus: difference between the value that consumers place on a product and the payment they actually make to buy that product (area under the demand curve and above the market price line) Producer surplus: difference between price and marginal cost (area above supply curve and below the market price line) Incidence (or burden) of a per unit tax. Buyers" share: difference between the pre-tax and post-tax price paid by buyers. Sellers" share: difference between the pre-tax and post-tax price received by sellers. Sellers" share (ss) = p0 - (p1 - tax) The burden of a tax is distributed between consumers and sellers in a manner that depends on the relative elasticities of supply and demand. When demand is inelastic relative to supply, consumers bear most of the burden of taxes. When supply is inelastic relative to demand, producers bear most of the burden.