ECON 2 Lecture Notes - Lecture 5: Demand Curve, Reservation Price
Document Summary
Predicting changes in prices and quantities supply curve. Shifts in the supply curve is based on production costs. Factors shifting the supply curve to the right: Expectation of lower prices in the future. Assumption: all exchange is purely voluntary i. e. exchange cannot take place unless the buyer"s reservation price > seller"s reservation price. Buyer"s surplus = difference between reservation price and price they actually pay. Seller"s surplus = difference between price they receive and reservation price. Total surplus = buyer"s surplus + seller"s surplus. Example: buyer"s reservation price for a tv is ,000 and seller"s reservation price is ,000. Buyer"s surplus = 10,000 7,000 = 3,000. Seller"s surplus = 7,000 5,000 = 2,000. Cash on the table: unexploited gains from exchange e. g. when price < equilibrium. Socially optimal quantity: quantity of a good or service maximum possible difference between the total benefits and total costs from producing and consuming the good or service.
