ECN 104 Chapter Notes - Chapter 7: Economic Surplus, Demand Curve

• School: Ryerson University
• Department: Economics
• Course: ECN 104
• Professor: Frank Trimnell

Document Summary

Recall, allocation of resources: how much of a good is produced, which producers produce it, which consumers consume it. Welfare economics: study of how allocation of resources affects economic well-being. Willingness to pay: the max. amount a buyer will pay for a good. Consumer surplus: a buyer"s wtp minus the amount the buyer actually pays: the area below the demand curve and above the price measures the consumer surplus. Cost: the value of everything a seller must give up to produce a good (opp. Producer surplus (ps): the amount a seller is paid for a good minus the seller"s cost: ps = p cost. Cs = (value to buyers) (amount paid by buyers) Ps = (amount received by sellers) (cost to sellers) = (value to buyers) (cost to sellers) In a market economy, the allocation of resources is decentralized, determined by the interactions of many self-interested buyers and sellers.