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Principles of microeconomics week 6, lecture 7

by: Meg

Principles of microeconomics week 6, lecture 7 EC 101 AA

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These notes cover the lecture on chapter 7 in class as well as main ideas from the textbook
Principles of Economics: Microeconomics
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This 6 page Class Notes was uploaded by Meg on Wednesday October 12, 2016. The Class Notes belongs to EC 101 AA at Boston University taught by Edson in Fall 2016. Since its upload, it has received 24 views.

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Date Created: 10/12/16
Chapter 7: Vocabulary: ● Welfare economics: ​ the study of how the allocation of resources affects economic well-being ● Willingness to Pay: ​ a maximum price a buyer would pay ● Consumer Surplus: ​ the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it ● Cost:​ the worker’s opportunity cost : includes out-of-pocket expenses and time ● Producer Surplus: ​ the amount a seller is paid minus the cost of production → measures the benefit sellers receive from participating in a market ● Efficiency:​ if an allocation of resources maximizes the total surplus ● Equality: ​whether various buyers and sellers in the market have a similar level of economic well-being Main Ideas: ● Each buyer would be eager to buy the album at a price less than he’s willing to pay, and each buyer would refuse to buy the album at a price above his willingness to pay. ● Total consumer surplus: add up individual ones ● Because the demand curve reflect buyer’s willing to pay, can also use it to measure consumer surplus ● The area below the demand curve and above the price measures the consumer surplus in a market ● Consumer surplus measures the benefit that buyers receive from the good as the buyers themselves perceive it ● The price given by the supply curve shows the cost of the marginal seller, the seller who would leave the market first if the price was any lower ● The area below the price and above the supply curve = the producer surplus in a market ● Consumer surplus = value to buyers - amount paid by buyers ● Producer surplus = amount received by sellers - cost to sellers ● Total surplus = Value to buyers - cost to sellers ● Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay ● Free markets allocate the demand for goods to the sellers who can produce them at the lowest cost ● Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus


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