Textbook Notes (362,901)
Economics (800)
ECON 1050 (379)
Chapter 5

# Microeconomics - Chapter 5.docx

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School
University of Guelph
Department
Economics
Course
ECON 1050
Professor
Semester
Fall

Description
Microeconomics - Chapter 5 Resource Allocation Methods Market Price Two kinds of people decide not to pay the market price: -those who can afford to pay but choose not to buy -those who are too poor and simply can’t afford to buy (use alternative methods to allocate resource) Command Command System – allocates resources by order of command (firms, government systems, etc.) Majority Rule Majority of voters choose how resource is allocated. Contest Allocates resources to a winner (or a group of winners). First come, First Served Allocated resources to those who are first in line. Lottery Allocate resources to those who up lucky on some a gaming system. Personal characteristics Allocated on the basis of personal characteristics. Force Bad: War/Theft Good: Government Enforcement Value is what we get, price is what we pay. The market demand curve is the horizontal sum of the individual demand curves and is formed by adding the quantities demanded by all the individuals at each price. A demand curve is a marginal benefit curve. Individual demand – relationship between the price of a good and the quantity demanded by one person Market demand – relationship between the price of a good and the quantity demanded by all buyers Marginal social benefit (MSB) – marginal benefit to the entire society Consumer Surplus – excess of benefit received from a good over the amount paid for It (marginal benefit - price summed over quantity bought) A supply curve is a marginal cost curve. Individual Supply – relationship between the price of a good and the quantity supplied by one producer Market Supply – relationship between the price of a good and the quantity supplied by all producers The market supply curve is the horizontal sum of the individual supply curves and is formed by adding the quantities supplied by all the producers at each price. Marginal Social Cost Curve (MSC) – Market supply curve Producer Surplus – when price exceeds marginal cost/excess of the amount received from the sale of a G or S over the cost of producing it (price received – marginal cost summed over quantity sold) Equilibrium
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