CHAPTER+7+.+CONSUMERS,+PRODUCERS,+AND+THE+EFFICIENCY+OF+MARKET+;)

=Chapter 7. Consumers, Producers, and the Efficiency of Market = = = 

 Objectives

 * What is consumer surplus? How is it related to the demand curve?
 * What is producer surplus? How is it related to the supply curve?
 * Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?

**Introduction**: What does it mean by "willingness-to-pay" in real life?

WATCH THIS VIDEO AND FIND OUT! :D
media type="youtube" key="5FJUXFy7PvI" height="340" width="560"

 =This is like.... Rachel wants to buy a new iPod. She wanted it ever since she was 10 years old. She is willing to pay $400 MAX! NO MORE! = =Kristie wants to buy a new iPod too, because she does not like her old one anymore. She will buy a new iPod only if it is under $300. =

__Rachel: YES! It's under $400! Finally I get a new iPod! :) :) :)__


Do you get it ?



 *  Welfare Economics **
 * The study of how the allocation of resources affects economic well-being
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Allocation of Resources
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">How much each good is produced
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Which producers produce it
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Which consumers consume it


 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Consumer Surplus **[[image:아짜증나.png align="right"]]
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Willingness to Pay: the maximum amount that a buyer will pay for a good
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Consumer Surplus: (a buyer's willingness to pay) - (the amount the buyer actually pays)
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">The price given by the demand curve reflects the willingness to pay of the marginal buyer.
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">The area below the demand curve is consumer surplus

<span style="font-family: 'Lucida Console',Monaco,monospace;">

[[image:언제다해.png width="322" height="280" align="left"]]<span style="font-family: 'Lucida Console',Monaco,monospace;">What Does Consumer Surplus Measure?

 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Consumer surplus is a good measure of economic well-being if policymakers want to respect the preferences of buyers
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Economists normally presume that buyers are rational when they make decisions and that their preferences should be respected

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<span style="font-family: 'Lucida Console',Monaco,monospace;"> Producer Surplus [[image:프로듀써.png width="355" height="328" align="right"]]

 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Measures economic welfare from the seller’s side
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Cost and Willingness to Sell
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Each seller is willing to take the job if the price they receive exceeds their cost of doing the work
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Cost – seller’s opportunity cost (value of everything a seller must give up to produce a good, including time)
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Cost is the measure of seller’s willingness to sell the service
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Producer surplus – amount a seller is paid for a good minus the seller’s cost
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">It measures the benefit to sellers participating in a market

<span style="font-family: 'Lucida Console',Monaco,monospace;">
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Using the Supply Curve to Measure Producer Surplus
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Just as consumer surplus is related to the demand curve, producer surplus is closely related to the supply curve
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Height of supply curve is related to seller’s cost
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">At any quantity, 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 were any lower
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">The area below the price and above the supply curve measures the producer surplus in a market

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<span style="font-family: 'Lucida Console',Monaco,monospace;"> Market Efficiency
<span style="font-family: 'Lucida Console',Monaco,monospace;">
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">The Benevolent Social Planner
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Economic well-being: Total surplus
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Total Surplus = Consumer Surplus + Producer Surplus
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Total Surplus = (Value to Buyers - Amount Paid by Buyers) + (Amount Received by Sellers - Costs of Sellers)
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Total Surplus = Value to Buyers - Costs of Sellers
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Efficiency: property of a resource allocation of maximizing the total surplus received by all members of society
 * <span style="font-family: 'Lucida Console',Monaco,monospace;">Equity: the fairness of the distribution of well-being among the various buyers and sellers

=KEY TERMS=
 * Willingness to Pay: the maximum amount that a buyer will pay for a good
 * Welfare Economics: The study of how the allocation of resources affects economic well-being
 * Consumer Surplus: (a buyer's willingness to pay) - (the amount the buyer actually pays)
 * Cost – seller’s opportunity cost (value of everything a seller must give up to produce a good, including time)
 * Producer surplus – amount a seller is paid for a good minus the seller’s cost
 * Efficiency: property of a resource allocation of maximizing the total surplus received by all members of society
 * Equity: the fairness of the distribution of well-being among the various buyers and sellers

Bib: home.manhattan.edu/~fiona.maclachlan/ppt/micro/micro_ch7.ppt http://f00.inventorspot.com/images/June%2021st%20-%20Portable%20Music14.jpg