ECO101H1 Lecture Notes - Lecture 5: Marginal Utility, Incentive Compatibility, Economic Surplus
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ECO101H1 Full Course Notes
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Free market, lottery, first come first serve, based on merit, prioritization on wait list, command and control. Marginal societal cost or private cost = mc. The behavioral assumption: keep doing something as long as mb is greater than mc. Market assumption: producer or consumer can sell/buy as much as they want without affecting market price. It is possible to increase either producer or consumer surplus without increasing total surplus. Wtp: willingness (and ability) to pay (somewhat determined by decisions, somewhat determined by luck) willingness reflects preferences, it"s a measurement of deservingness that isn"t so hard to implement. Price floor: government mandated minimum price (relevant if above equilibrium) Price ceiling: government mandated max price (relevant if below equilibrium) The more inelastic the demand curve, the more producer surplus is created with a price floor. The more elastic the demand curve, the less producer surplus is created with a price floor.
