Resource allocation method
1. Market price
2. Command system
3. Majority Rule
5. First Come, First Serve
7. Personal characteristics
Value is what you get and price is what you pay. The marginal benefit is the maximum price that
we are willing to pay for another unit of good or service. The market demand curve is the
horizontal sum of the individual demand curves and is formed by adding the quantities
demanded at each individual price.
Consumer surplus - is the excess benefit we receive from a good over the amount paid for it.
Marginal cost is the minimum cost that producers must receive to induce them to offer one more
unit of good or service for sale.
Producer surplus- is the excess of the amount received from the sale of a good or service over
the cost of producing it. It is area below the supply curve. The consumer surplus and producer
surplus can be used t measure deficiency of a market. Total surplus is the sum of producer and
consumer surplus and in an efficient market it is maximized.
Market failure - when market is inefficient leading to underproduction or overproduction . this
can be measured by deadweight loss, which decreased the total surplus that results from an
inefficient level of production. It is considered a social loss
Source of Market Failures:
1. Price and quantity regulation- a price regulation (price cap or price floor) blocks the price
2. Taxes and subs