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J Ianweizhen

Chapter 7-Consumers, Producers and Efficiency of markets Definitions Welfare economics: the study of how the allocation of resources affects economic well being Willingness to pay: maximum amount that buyer will pay for a good consumer surplus: the buyer’s willingness to pay minus the amount the buyer actually pays cost: value of everything a seller must give up to produce a good producer surplus: amount a seller is paid for the good minus the seller’s cost efficiency: property of a resource allocation of maximizing the total surplus received by all members of society equity: fairness of the distribution of well being among the member of society Concepts Consumer surplus Consumer surplus is the area below a person's willingness to pay and above what the buyer actually pays shaded area is consumer surpluss quantity price 0 0 1 40 2 60 3 90 ted 40 Ed 60 Eddy 90 Producer surpluss Producer surplus is the amount a seller is paid minus the cost producer surplus is $40 which is the shaded area. jane 80 jack 50 han 30 Consumer surpluss and producer surpluss in supply and demand diagram Efficiency Efficiency is if the allocation of resouce maximize the total surplus. Policy makers acount for efficiency and equity which is ho equal the ditribbution of the benefit Invisiblehand : laisez faire aproach letting the supply and demand dicatate the market Market failure market power: when a single buyer or seller is able to control market prices monopoly externality: an unacounted effect involving buyer and sellers and bystander, polution Chapter 8 : The costs of taxation Deadweight loss: fall in total surplus that results from a market distiortion(tax) When a good is taxed the market price moves to where it is tax creating a deadweight loss and tax revenue When supply/demand are inelstic there is less deadweight loss. The greater the elasticity the greater the deadweight loss. The flatter it gets the more elastic Labour’s elasticy is highly argued therefore economist can not make a conclusion on income tax deadweight loss. Chapeter 10 Externality: uncompensated impact of one persons action on the well being of a bustander ei, smoking internalizing the externality: allter incentives so that people take of the externall effects of their action ie; tax on poluters corrective tax: taxes enacted to correct the effect of negative externalities. corrective tax is more efficient than regualtion beccouse corrective tax would give producer incentive to lower polution coase therem: proposition that if private parties can bargain without cost over the allocation of resources, they can solve the porblem externalities on their own ie: dicks dog and janes complaint. Private econo
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