ECN 104 Lecture Notes - Lecture 7: Market Power, Economic Surplus, Economic Equilibrium

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Lecture notes from chapter 7: consumers, producers & efficiency of markets. How much of each good is produced. Welfare economics studies how the allocation of resources affects the economic well- being. A buyer"s willingness to pay for a good is the maximum amount the buyer will pay for that good. Wtp measure how much the buyer values the good. Consumer surplus (cs) the amount a buyer is willing to pay minus the amount the buyer actually pays. Total cs equals the area under the demand curve above the price from 0 to q. Cs is the area between price and demand curves from 0 to q. Higher pricing reduces cs due to buyers leaving market. Fall in cs also due to buyers paying at a higher price. Cost is the value of everything a seller must give up to a produce a good (opportunity cost) Includes cost of all resources used to produce good, including value of seller"s time.

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