EC120 Chapter Notes - Chapter 7: Economic Surplus, Demand Curve, Economic Equilibrium
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EC120 Full Course Notes
Verified Note
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Document Summary
Welfare economics-the study of how the allocation of resources affect economic well-being. The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers. We look at the benefits buyers receive from participating in a market. Each person has a limit to the amount that they are willing to pay for it. Willingness to pay-maximum amount that a buyer will pay for a good. Consumer surplus-a buyer"s willingness to pay minus the amount the buyer actually pays. Using the demand curve to measure consumer surplus. The following graph shows the demand curve that corresponds to the previous demand schedule. At any quantity the price given by the demand curve and the buyers" willingness to pay of the marginal buyer - the buyer who would leave the market first if the price was any higher. It can also be used to measure consumer surplus.
