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Chapter 7

Microeconomics - Chapter 7.docx

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Rita Cossa

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Microeconomics – Chapter 7 (Consumer and Producer Surplus) Welfare Economics – Studies how the allocation of resources affects economic well-being Willingness to pay – Amount consumer values good at and maximum amount of money a consumer is willing to buy a good at Marginal Buyer – A buyer who would leave the market if the price were any higher (Ex. Buyer at max willingness to pay) Consumer Surplus – Amount a buyer is willing to pay minus amount buyer actually pays Consumer Surplus = Willingness To Pay – Price Paid - Market demand curve depicts consumers’ willingness-to-pay If the price decreased from $40 to $30: - Green shaded area represents an addition of CS for initial customers - Blue shaded area represents an addition of CS for new customers Cost – Value of everything a seller must give up producing a good, including time (i.e. Opportunity cost) Marginal Seller – A seller who would leave the market if the price were any lower (Ex. Minimum amount to sell goods) Producer Surplus: Amount a seller is paid for a g
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