ECO 1104 Lecture 8: Oct.30.2018

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: David Gray

Document Summary

Best way to understand an equilibrium condition is to understand what happens when you move away from it. The height of the demand curve shows the consumers willingness to pay a unit. Let the market do and go where it wants. The s and d equilibrium is efficient or welfare maximizing. Situations in which that condition does not apply are called market failure. The situation in which that condition does not apply is the called the normal state of affairs" by left-wing analysists. Dwl = loss in total surplus that occurs whenever the actual output-price combination is not the equilibrium combination and therefore not efficient. The area below the d curve yet above the s curve. Reflects the welfare that could have been. Suppose that a per uni excise tax is imposed on sellers. S shifts upward and to the left by the full amount of tax called t. New equilibrium p higher, new equilibrium, lower.