Chapter 7 - Consumers, Producers & the Efficiency of Markets

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recall, the allocation of resources refers to: How much of each good is produced. welfare economics studies how the allocation of resources affects economic well-being. first, we look at the well-being of consumers. A buyer s willingness to pay for a good is the maximum amount the buyer will pay for that good. Wtp measures how much the buyer values the good. Consumer surplus is the amount a buyer is willing to pay minus the amount the buyer actually pays: This d curve looks like a staircase with 4 steps one per buyer. At q = 5(thousand), the marginal buyer is willing to pay for pair of shoes. Cs with lots of buyers & a smooth d curve. Cs is the area b/w p and the d curve, from 0 to q. cost is the value of everything a seller must give up to produce a good (i. e. , opportunity cost).