ECO 1104 Chapter Notes - Chapter 7: Externality, Market Failure, Market Power

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20 Nov 2016

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Chapter 7- consumers, producers, and the efficiency of markets. Welfare economics: the study of how the allocation of resources affects economic well-being. Conclusion: the equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers. Goal: to make normative judgements about desirable market outcomes, this is a good measure of consumer well-being because most buyers are rationally looking out for their best interests. Willingness to pay: the maximum amount that a buyer will pay for a good, measure how much the buyer values the good. Consumer surplus: measures the benefit to buyers in a particular market, as they perceive it. A buyer"s willingness to pay - amount the buyer actually pays. Represented by the area below the demand curve and above the price measure. The existing buyers who bought q1 can now buy the same quantity for a lower price. The new buyers at q2 enter the market at the lower price.

Related Questions

True or False:

1. Consumer surplus is the buyer's willingness-to-pay minus the seller's opportunity cost of production.

2. If your willingness-to-pay for a hamburger is $3 and you paid $2, then your consumer surplus is $5.00

3. The opportunity cost of production for a seller includes the implicit cost of the seller's time.

4. The height of the supply curve at a selected quantity is the seller's opportunity cost of producing that marginal unit.

5. Total surplus (total well-being) is the seller's cost of production minus the buyer's willingness-to-pay.

6. The competitive market equilibrium outcome is efficient because it allocates the produced output to the buyers who place the highest value on the good

7. Producer surplus is the area above the supply curve and below the price.

8. The competitive market equilibrium outcome maximizes total surplus (total well-being)

9. Producing and consuming more of a good will always increase the total surplus(total well-being).

redelephant805

7) Indicate whether each of the following statements is true or false, and explain why.

A. Producer surplus tends to fall as the supply curve becomes more elastic.

B. Consumer surplus tends to rise as demand becomes more elastic.

C. The market demand curve indicates the minimum price buyers are willing to pay at each level of production.

D. The market supply curve indicates the minimum price required by sellers as a group to bring forth production.

E. Consumer surplus is the amount that consumers are willing to pay for a given good or service above and beyond the amount actually paid.

bronzeoyster264

Purpose of Assignment

In Week 2, students will employ the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. Students learn about welfare economics--the study of how the allocation of resources affects economic well-being--and will discover that under most circumstances, the equilibrium price and quantity is also the one that maximizes welfare. Students will review different sources of externalities and a variety of potential cures and will see that while markets are usually a good way to organize economic activity, governments can sometimes improve market outcomes. Students will see how the U.S. government raises and spends money and the difficulty of making a tax system both efficient and equitable.

Assignment Steps

Scenario: Imagine you have been assigned the responsibility of preparing a paper for the governor's next economic conference.

Prepare a 1,050-word paper addressing the following:

Explain why equilibrium of supply and demand is desirable.

Explain the following concepts using the concept of consumer and producer surplus:

Efficiency of markets

Costs of taxation

Benefits of international trade

Discuss how externalities may prevent market equilibrium and the various government policies used to remedy the inefficiencies in markets caused by externalities.

Analyze the difference between the efficiency of a tax system and the equity of a tax system as it refers to the costs imposed on taxpayers using the benefits principles.

Cite a minimum of three peer-reviewed sources, not including your textbook.

Format consistent with APA guidelines.

rosegerbil765

ECO 1104 Chapter Notes - Chapter 7: Externality, Market Failure, Market Power

ECO 1104 Full Course Notes

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