ECON 2010 Chapter Notes - Chapter 7: Demand Curve, Efficient-Market Hypothesis, Economic Surplus

• School: CU-Boulder
• Department: Economics
• Course: ECON 2010
• Professor: Alexander Hill

Document Summary

Welfare economics is the study of how the allocation of resources affects economic well-being. In any market, the equilibrium of supply and demand maximizes the total benefits received by all buyers and sellers combined. Willingness to pay is the maximum amount that a buyer will pay for a good. If the price is exactly the same as the value he places on the good, he would be equally happy either buying it or keeping the money. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. Consumer surplus measures the benefit buyers receive from participating in a market. 7-1b using the demand curve to measure consumer surplus. Because the demand curve reflects buyers" willingness to pay, we can also use it to measure consumer surplus. The area below the demand curve and above the price measures the consumer surplus in a market.