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AU - ECON 200 - Week 3 notes pt 2 - Class Notes

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AU - ECON 200 - Week 3 notes pt 2 - Class Notes

School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags: efficiency
Name: Week 3 notes pt 2
Description: Efficiency, unexploited gains, wasted resources
Uploaded: 02/11/2019
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background image Chapter 4 Efficiency  Energy independence, price gouging, and relationships  Consumer surplus- buyers’ gains from trade, difference between marginal benefit 
and actual price (marginal benefit is what value buyer assigns to product) 
Producer surplus- sellers’ gains from trade, difference between price and marginal 
cost
 (the less of an opportunity cost/ production cost, the greater the producer’s 
surplus and lower marginal cost)
Social surplus- society’s gains from trade, difference between marginal benefit and 
marginal cost (low cost of production and high marginal benefit is ideal)
Social surplus that could have been gained by producing a larger amount is 
unexploited gains (more people in market could have benefited from creating 
more of the high value materials at a low production cost), but producing too much 
can destroy value & asocial surplus bc wasted resources (valuable raw materials 
are worth more than the product being created in these quantities)
In the middle of Unexploited Gains & Wasted Resources is Q*, which is efficient bc it 
maximizes social surplus, but Q* is different for every market (markets produce the 
efficient quantity on their own bc sellers have natural self-interest and individual 
buyers deem any given product to have a certain value)
Energy Independence If we make all cars more fuel efficient and everyone drives at the same rate as they 
currently do, it will not make the U.S energy independent because the producers 
who have the highest production costs (which are the domestic producers) will stop 
producing first, the price of oil will go down since the demand will be lower (people 
using less oil) and it will not make any sense for them to produce at that lower 
price.
 Increasing energy efficiency would actually make the U.S more dependent on 
foreign oil because the middle east has the lowest production cost and would be the
only country who would continue to make money even when oil prices decrease 
(buying American is not as important to people as it is to buy cheap, foreign is 
cheapest)
Market for bottled water (price gouging) Market is in equilibrium, then natural disaster is forecast Increased demand bc ppl expect bottled water will be more expensive in the future  If price goes unchanged, shortage happens because there is no incentive for buyers 
to buy only when it is important (if price is higher, buyers will ration more and then 
resources like bottled water will be more available to people in need)
No incentive for sellers to produce more goods when prices can’t be raised because 
they won’t make more money for the extra work to increase production, send their 
distributers into a dangerous area, etc., which also causes a shortage (when prices 

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School: American University
Department: Economics
Course: Principles of Microeconomics
Professor: O Ozay
Term: Spring 2019
Tags: efficiency
Name: Week 3 notes pt 2
Description: Efficiency, unexploited gains, wasted resources
Uploaded: 02/11/2019
2 Pages 55 Views 44 Unlocks
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  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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