Chapter+7+Consumers,+Producers,+and+the+Efficiency+of+Markets.JAKS

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




//(definitions can be found below)// 
 * Welfare Economics: the study of how the allocation of resources affects economic well-being.
 * Willingness to pay
 * Consumer Surplus
 * Cost
 * Producer Surplus
 * Efficiency
 * Equity



 * Get a glance of Welfare Economics by examining the gains both the buyers and sellers get from participating in the market.
 * Comparisons between society's benefit from economic surplus.
 * The effects of equilibrium of supply and demand on total surplus.

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**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Before we get started lets review the 4 characteristics of a competitive market: **

 * =====**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">There are enough buyers and sellers in the market that no single one can influence price **=====
 * =====**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">The products of all firms are largely the same **=====
 * =====**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Firms can enter or exit the market freely **=====
 * =====**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Information about prices and products is freely available to all firms. **=====

**<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">1. Consumer Surplus **<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">
<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> 1).Willingness to pay: the maximum amount that a buyer will pay for a good

2). Consumer surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> 3). Marginal buyer: the buyer who would leave the market first if the price were any higher.
 * <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">It measures the benefits to buyers of participating in the market.
 * <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Consumer Surplus = willingness to pay of a consumer - price pf the good.

<span style="color: #ad0000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**Explanation** <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> The demand curve reflects buyer’s willingness to pay. The area below the demand curve and above the price measures the consumer surplus in a market. Because buyers always want to pay less for the goods they buy, a lower price makes buyers of a good better off. Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it. Thus, consumer surplus is a good measure of economics well-being if policymakers want to respect the preference of buyers. In most markets, however, consumer surplus does reflect economic well-being.

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**2. Producer Surplus**
<span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">1). Cost: the value of everything a seller must give up to produce a good

2). Producer surplus: the amount a seller is paid for a good minus the seller’s cost of providing it.

3). Marginal seller: the seller who would leave the market first if the price were any lower

<span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**Explanation** <span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> The supply curve reflects sellers’ cost. The area below the price and above the supply curve measures the producer surplus in a market. We use producer surplus to measure the well-being of sellers in much the same way to measure the well-being of buyers. <span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">

<span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">
<span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> <span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">1) Efficiency: the property of a resource allocation of maximizing the total surplus received by all members of society.

2) Equity: the fairness of the distribution of well-being among the members of society.

3) Consumer surplus = value to buyers - amount paid by buyers

4) Producer surplus = amount received by sellers - cost to sellers

5) Total surplus = value to buyers - cost to sellers

<span style="color: #ad0000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**Explanation** <span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Consumer surplus is the benefit that buyers receive from participating in a market, and producer surplus is the benefit that sellers receive. Free markets allocate the supply of goods to the buyers who value then most highly, as measured by their willingness to pay. Free markets allocate the demand for goods to the sellers who can produce them at least cost. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus. If an allocation of resources among consumer and producer is not efficient, the some of the gains from the trade among them are not being realized. <span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">

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<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> 1) Market power: A single buyer or seller is able to control market prices. It causes markets to be inefficient because it keeps the price and quantity away from the equilibrium of supply and demand.

2) Externality: Decisions of buyers and sellers can effect people who are not participants in the market at all. Ex: pollutions.

<span style="color: #0085ad; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**Explanation** <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Market failure is the term we use for such problems that arise. It is the inability of some unregulated markets to allocate resources efficiently. When this happens, the government tries to aid this problem and increase efficiency within the market.

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">5. Conclusion
<span style="border-collapse: separate; color: #ff0600; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;">Summary of all this in **90** seconds Ready Set Go!!

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<span style="border-collapse: separate; color: #000000; font-family: arial,helvetica,sans-serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> =**<span style="color: #00ff00; display: block; font-family: Impact,Charcoal,sans-serif; font-size: 42px; text-align: center;">THANK YOU **=

=<span style="border-collapse: separate; color: #000000; font-family: arial,helvetica,sans-serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> **<span style="background-color: #811a9e; color: #ffffff; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;">Review Questions **<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> = <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Which of the following is true about the pure public good? <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> If there is a negative externality associated with the production of a private good, which of the following is an action by government that would most likely move the market to an efficient outcome? <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> If there is a positive externality associated with the production of a private good, which of the following is an action of government that would most likely move the market to an efficient outcome? <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> For a polluting steel company, a government action to most likely to achieve an optimal efficient outcome would produce what effect on the market equilibrium price and output? <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Which of the following is true? <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Answers7.Jaks
 * 1) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">The marginal cost of providing an additional unit of the good to additional citizens is greater than zero.
 * 2) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Consumers can be excluded from its benefits by not paing for it.
 * 3) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">One more unit of a public food for some consumers means one less unit for other consumers
 * 4) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">The good cannot be divided into discrete units
 * 5) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">It has a pure moral nature.
 * 1) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Close the firm producing the good.
 * 2) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Subsidize the firm or its customers
 * 3) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Tax the firm
 * 4) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Appoint a commission
 * 5) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Relocate the firm
 * 1) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Close the firm producing the good.
 * 2) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Subsidize the firm or its customers
 * 3) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Tax the firm
 * 4) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Appoint a commission
 * 5) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Relocate the firm
 * 1) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Output would increase; no change in price
 * 2) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Output would increase; price would decrease
 * 3) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Output would increase; price would increase
 * 4) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Output would increase; price would decrease
 * 5) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Output would decrease, price would increase
 * 1) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Marginal Social Costs = Private Marginal Costs + Negative Externality
 * 2) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Marginal Social Costs = Private Marginal Costs + subsidy
 * 3) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Marginal Social Benefits = Private Marginal Benefits + Tax
 * 4) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Tax = positive externality
 * 5) <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">Subsidy = negative externality

==<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">**<span style="background-color: #811a9e; color: #ffffff; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;">Work Cited ** == <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> image: http://www.motivationalrefrigeratormagnets.com/photo-gallery-black/images/large/lg_willingness_is_an_action.jpg Video: http://www.youtube.com/watch?v=4GVD94OUMwA image: http://www.mgmkorean.org/wpk/wp-content/uploads/2009/08/consumer_society1.jpg