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Micro Chapter 4 Exam 1
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Deman Curve and Consumer Surplus
WTP
a consumer's willingness to pay (WTP) for a good
= he maximum price at which he/she would buy that good
Individual consumer surplus (CS)
the net gain to an individual buyer from te purchase of a good
Total consumer surplus
the net gain to an individual buyer from the purchase of a good
= difference b/w the buyer's WTP and the price paid
Total consumer surplus
: the sum of all individual CSs
Consumer Surplus
the total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price
Supply curve and the Producer Surplus
a potential seller's COST of producing good
= the minimum price at which he/she is willing to sell the good
Individual produce surplus: (PS)
the net gain to a seller from selling a good
= difference b/w the price received and the seller's cost
total producer surplus
the sum of all individual producer surplus
Producer surplus
the total producer surplus from sales of a good at a given price is the area above the supply curve but below that price
Total Surplus = sum of TCS and TPS
Efficiency of markets
Gains from trade in the market
competitive markets help us to reach maximum possible total surplus at market equilibrium
Is Higher Total Surplus Possible?
Three ways to test
1. reallocating consumption among consumers
Take a g/s from a buyer with WTP higher than P* and give it to a person with WTP lower than P*
2. Realocating sales among sellers
Take sales from a seller with costs lower than P* and force
a seller with costs higher than P* to sell it
3. Changing the quantiy traded
Compel buyers and sellers to trade either more or less than Q*
Market Equilibrium Maximizes Total Surplus
It allocates consumption of g/s to the potential buyers with the highest WTP
It allocates sales to the potential sellers w/the lowest costs
it ensures mutual benefits
: WTPbuyer > Cseller
if WTPbuyer < C seller, no mutually beneficial trade possible
Key Role Players In Market Mechanism
Property Rights
give freedom of disposal of what you own
price or the change in price
Signals buyers and sellers reservation prices and maket dis-/equilbrium
What Makes Markets Inefficient??
Market Failure
Externalities
Smart for one, dumb for all!!
Market Control
Price Control
Quantiy Control
Author
Anonymous
ID
131240
Card Set
Micro Chapter 4 Exam 1
Description
consumer and producer surplus/ market equilibrium/total surplus
Updated
2012-01-28T22:59:12Z
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