ECO101H1 Study Guide - Allocative Efficiency, Pareto Efficiency, Economic Surplus
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ECO101H1 Full Course Notes
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For the firm: requires that the firm be producing its output at the lowest possible cost. For the industry: requires that all firms in the industry have the same marginal cost. In an individual industry: when the level of output is such that the marginal cost of production equals the market price. In the overall economy: when price equals cost in all industries at once. Consumer surplus: difference between the value that consumers place on a product and the payment they actually make to buy that product (area under the demand curve and above the market price line) Producer surplus: difference between price and marginal cost (area above supply curve and below the market price line) Incidence (or burden) of a per unit tax. Buyers" share: difference between the pre-tax and post-tax price paid by buyers. Sellers" share: difference between the pre-tax and post-tax price received by sellers. Sellers" share (ss) = p0 - (p1 - tax)