ECON101 Chapter Notes - Chapter 5: Marginal Utility, Demand Curve, Economic Surplus

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Wokia Kumase

Document Summary

Objective #1: describe the alternative methods of allocating scarce resources: you make choices in your self-interest, markets coordinate your choices along with those of everyone else, when we pursue equity we loose efficiency. Scarce resources might be allocated by: market price, command: system very inefficient because rules have to be followed, majority rule: group of people decided how to collect and allocate revenue (e. g. taxes distributed for health) Tickets (concerts, hockey: sharing equally, lottery, personal characteristics. Objective #2: explain the connection between demand and marginal benefit and define consumer surplus. Combining the two demand curves creates the market demand curve (what society is willing to pay) Econ 101: chapter 5 - efficiency and equity. Objective #3: explain the connection between supply and marginal cost and define producer surplus. Supply and marginal cost: firms are in business to make a profit, to make a profit, firms must sell their output for a price that exceeds the cost of production.