Principles of Micro Economics: Invisible Hand
Principles of Micro Economics: Invisible Hand Econ 103
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This 4 page Class Notes was uploaded by Dasmine Ferrer on Sunday March 6, 2016. The Class Notes belongs to Econ 103 at Pace University taught by Anna Shostya in Winter 2016. Since its upload, it has received 29 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Pace University.
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Date Created: 03/06/16
3/6/16 Principles of Micro-Economics Notes: Invisible Hand in Supply and Demand By: Dasmine Ferrer Adam Smith wrote “Wealth of Nations” (1776) Invisible Hand: Smith described this as the unintentional benefits from individual actions. The Demand Curve and Consumer Surplus: Consumer Surplus: amount a consumer is willing to pay MINUS the price the consumer ACTUALLY pays. o Ex: Jamie really wants to buy concert tickets and expects them to be $150. However, when she searches online to see how much they cost, they end up being $80. Therefore the consumer surplus would be $70. To compute the total consumer surplus, add up all surpluses for each consumer who buys. The Supply Curve and Producer Surplus Producer Surplus: Equals the price a producer receives for a product MINUS the marginal costs of product. o If marginal costs for a haircut is $10 and a barber does it for $15, the producer surplus is $5. Willingness to accept: minimum amount a producer is willing to accept as payment fora product. Market producer surplus equals the sum of the surpluses learned by all producers in the market. Total Surplus Total Surplus: sum of consumer surplus and producer surplus. *Market Price DECREASES = consumer surplus INCREASES & producer surplus DECREASES* *Market Price INCREASES = consumer surplus DECREASES & producer surplus INCREASES* Key Words: Deadweight Loss: when equilibrium for a good or service is not acheived or is not achievable. (Groups C and E in graph above) Gross Price: Price paid by consumers. Net Price: the difference between the full cost MINUS the discount. o Example: The price to attend college MINUS the grants and scholarships that a student receives. Marginal Utility: additional satisfaction a consumer gains from consuming one more unit of good or service. Law of Diminishing Utility: (negative marginal utility) as a consumer increases consumption of a product, there is a decline in marginal utility that the consumer derives from consuming each additional product. o Example: When someone consumes one donut, they are satisfied and full. When the same person consumes a second donut, they are starting to feel discomfort from all the carbs and sugar. When the consumer consumes a third donut, they are officially dissatisfied, therefore the marginal utility has decreased.
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