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United States (206,095)
Economics (994)
Chapter 7

Chapter 7 - Consumers, Producers, and the Efficiency of Markets

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Department
Economics
Course
Economics 10a
Professor
Gregory Mankiw
Semester
Fall

Description
Part III: Markets and Welfare Chapter 7: Consumers, Producers, and the Efficiency of Markets  Consumer Surplus ­ welfare economics: the study of how the allocation of resources affects economic  well­being ­ equilibrium of supply and demand maximizes the total benefits received by  buyers and sellers ­ good goes to the buyer who values it most highly  ­ consumer surplus: the amount a buyer is willing to pay for a good minus the  amount the buyer actually pays for it ­ measures the benefit buyers receive by participating in market ­ demand curve related to consumer surplus, demand schedule based on how much  buyers are willing to pay ­ demand curve shows willingness to pay of the marginal buyer: buyer who would  leave the market first if the price were higher  ­ curve is stepwise in small market (decision of each buyer is distinct) ­ the area below the demand curve and above the price measures the consumer  surplus in a market ­ total area below demand curve and above price is the sum of consumer surplus of  all buyers  ­ lower price increases consumer surplus ­ consumer surplus usually reflects economic well­being, assuming buyers are  rational   Producer Surplus ­ cost: the value of everything a seller must give up to produce a good ­ producer surplus: the amount a seller is paid for a good minus the cost of  providing it  ­ measures the benefit sellers receive from participating in a market ­ supply schedule derived from costs of producers ­ height of supply curve related to sellers’ costs  ­ price given by supply curve show
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