Economics 1021A/B Lecture 5: Chapter 5 Efficiency and Equity

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kanhert

Document Summary

For most goods and services, the market turns out to do a good job. Value is what we get, price is what we pay. The value of one more unit of a good or service is its marginal benefit. We measure value as the maximum price that a person is willing to pay. A demand curve is a marginal benefit curve. Quantity demanded of the market: sum of all buyers" quantity demanded. The market demand curve is the horizontal sum of the individual demand curves. Consumer surplus: defined as the excess of the benefit received from a good over the amount paid for it, calculated as the marginal benefit (or value) of a good price= consumer surplus. Firms are in business to make a profit. To make a profit, firms must sell their output for a price that exceeds the cost of production. Cost is what the producer gives up, price is what the producer receives.