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Econ Chapters 7-11.docx

8 Pages

Course Code
ECON 1000

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Summary of Chapter 7Introduction to Welfare Economics how allocation of resources benefits buyers and sellers the best allocation is the one that maximizes total value in theeconomyBuyerswillingness to payWTPdemand schedulecurve describes the willingness to pay of each additional marginal buyer as the price fallsMarginal buyer is the one that would leave the market if the price were any higher consumer surplus the difference between WTP and the amount actually paid by buyers or the area under the demand curve and above the price for any given quantity increasedecrease in price reducesincreases value of consumer surplus Two components eg for a price increase 1 decrease in CS for those buyers who have left the market due to the price increase and 2 decrease in CS for those remaining in marketSellers willingness to sell WTS or the sellers opportunity costs to produce the goodSupply schedulecurve describes the WTS or costs for each additional marginal seller as the price increasesMarginal seller is the one who would leave the market if the price were any lowerProducer surplus the difference between price received by the seller and hisher WTScosts orThe area above the supply curve and under the price for any given quantityIncreasedecrease in price increasesdecreases producer surplusTwo components eg for a price decrease 1 decrease in PS for those suppliers who leave the market as their WTScosts are greater than the new price and 2 the decrease in PS for those sellers remaining in the market who now receive the lower priceBuyers and Sellers Total SurplusCSPStotal value generated by the marketMarket equilibrium the combination of price and quantity that maximizes Total Surplus ie Pe and Qe
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