[ECO 101] - Final Exam Guide - Everything you need to know! (41 pages long)
Document Summary
Demand curve reflects consumers" full willingness to pay. Supply curve must reflect all the costs of production: consumer surplus- difference between the maximum price and consumer is willing to pay and the price they actually pay. Price consumers are willing to pay reflects the demand curve. Minimum price acceptable will equal the marginal cost to produce it. It is the opportunity cost of bidding resources away from the production of other products. Triangle above the supply curve is the surplus: the intersection of the supply curve and the demand curve is maximized producer and consumer surplus. Productive efficiency- competition forces the best technology and combination of resources allocative efficiency- correct quantity is produced relative to other goods. Demand curves are marginal benefit curves supply curves are marginal cost curves. When mb>mc it includes the opportunity cost of not making the product, but we want the units to be made. Maximum willingness to pay (demand) and the minimum acceptable price (supply)
