AHSS*1000 Chapter : MICRO 7- 9.docx

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22 Feb 2014
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Recall, the allocation of resources refers to: how much of each good is produced, which producers produce it, which consumers consume it. The study of how the allocation of resources affects economic well-being. First, we look at the well-being of consumers. Cost is the value of everything a seller must give up to produce a good (i. e. , opportunity cost). Includes cost of all resources used to produce good, including value of the seller"s time. Example: costs of 3 sellers in the lawn-cutting business. A seller will only produce and sell the good if the price exceeds his or her cost. Hence, cost is a measure of willingness to sell. Cs = (value to buyers) (amount paid by buyers) Cs measures the benefit buyers receive from participating in the market. Ps = (amount received by sellers) (cost to sellers) Ps measures the benefit sellers receive from participating in the market. Ts measures the total gains from trade in a market.

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