ECON 1B03 Study Guide - Midterm Guide: Externality, Social Cost, Economic Equilibrium
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ECON 1B03 Full Course Notes
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Document Summary
Welfare economics: study of how the allocation of resources affects economic well- being. Equilibrium in the market results in maximum benefits and therefore maximum total welfare". Willingness to pay: the maximum amount you"re willing to pay for a certain quantity of a good (also called reservation price), how much value you place on the good. Consumer surplus: the buyers willingness to pay minus the amount the buyer actually pays, = how consumers value the good. = the area under the demand curve above the selling price. Producer surplus (cost): the amount that a seller is actually paid for a good the seller"s willingness to sell. = the area below the selling price and above the supply curve. Consumer surplus = value to the buyers amount buyer pays. Producer surplus = amount sellers receive cost to sellers. Total surplus = consumer surplus + producer surplus. Total surplus = value to the buyers cost to sellers.