Chapter+7+Consumers,+Producers,+and+the+Efficiency+of+markets+JBS

=Chapter 7 Consumers, Producers, and the Efficiency of markets JBS =  
 * Key Terms:** 

**Welfare Economics**: The study of how the allocation of resources affects economic well-being


 * Willingness to Pay : ** The maximum amount that a buyer will pay for a good


 * Consumer Surplus : ** The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

**Cost** : The value of everything a seller must give up to produce a good


 * Producer Surplus : ** The amount a seller is paid for a good minus the seller's cost of providing it 

** Consumer and Producer Surplus Graph **
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==<span style="font-family: Tahoma,Geneva,sans-serif;">**<span style="color: #000080; font-family: Tahoma,Geneva,sans-serif;">Consumer Surplus & Producer Surplus <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> ** == <span style="font-family: Tahoma,Geneva,sans-serif;">

<span style="font-family: Tahoma,Geneva,sans-serif;">Consumer Surplus
<span style="font-family: Tahoma,Geneva,sans-serif;"> Willingness to pay measures how much that buyer values the good. When one is willing to pay more than the actual price, one would get consumer surplus. consumer surplus : amount a buyer is willing to pay for a good - amount the buyer actually pays for it.

//Using demand curve to explain// At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer, the buyer who would leave the market first if the price were any higher. -The area below the demand and above the price measures the consumer surplus in a market. height of the demand curve measures the value buyers place on the good, as measured by their willing to pay for it.

-Consumer surplus, measures the benefit that buyers receive from a good as the buyers themselves perceive it. -In most markets, consumer surplus does reflect economic well-being.

<span style="font-family: Tahoma,Geneva,sans-serif;">Producer Surplus
<span style="font-family: Tahoma,Geneva,sans-serif;"> Cost : the value of everything a seller must give up to produce a good Producer surplus is the amount a seller is paid - cost of production. Producer surplus measures the benefit to sellers of participating in a market.

//Using supply curve to explain// 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. - The area below the price and above the supply curve measure the producer surplus in a market.

<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> <span style="font-family: Tahoma,Geneva,sans-serif;">***Equilibrium point maximizes total surplus**

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<span style="color: #000080; font-family: Tahoma,Geneva,sans-serif;">**Economic Efficiency:**
<span style="font-family: Tahoma,Geneva,sans-serif;">Benevolent Social Planner The benevolent social planner wants to maximize the economic well-being for everyone in the society.

How would he do this? TOTAL SURPLUS! -Consumer surplus is the benefit that buyers receive, and producer surplus is the benefit that sellers receive.


 * Consumer surplus = value to buyers - amount paid by buyers


 * Producer surplus = amount received by sellers = cost to sellers


 * Total surplus = consumer surplus + producer surplus


 * Total surplus = value to buyers - cost to sellers

If an allocation of resources maximizes total surplus, we say that the allocation exhibits EFFICIENCY. - When all of the gains from trade is realized, it is efficient.

If the gains from trade in a market is distributed among all of the market participant,it exhibits EQUITY.

-Social planner pays attention to both efficiency and equity.

Total surplus = total area between supply and demand that curves up to equilibrium point.

Is equilibrium allocation of resources efficient? 1. Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. 2. Free markets allocate the demand for goods to the sellers who can produce them at least cost. 3. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.

When all of these insights are together, the total surplus would be maximized.

So! the social planner uses //laizzi faire//, the invisible hand, to "allow them to do."

[[image:Ticket_scalping.gif width="261" height="261"]]
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 * Ticket Scalping**: Increase Efficiency but Illegal

<span style="color: #000080; font-family: Tahoma,Geneva,sans-serif;">**Video**
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