ECN 104 Chapter Notes - Chapter 5: Economic Surplus, Allocative Efficiency, Demand Curve
28 Mar 2016
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Chapter notes to be used with the textbook. When demand curves fail to reflect consumers" full willingness to pay for goods or services. When supply curves fail to reflect the full cost of producing a good or service. The costs that its pollution imposes on other people. These include future harm from global warming, toxins that affect wildlife, and possible damage to agricultural crops. Two conditions must hold if a competitive market is to produce efficient outcomes: The demand curve in the market must reflect consumers" full willingness to pay. 1: the supply curve in the market must reflect all the costs of production. Consumer surplus: the difference between the maximum price consumers are willing to pay for a product and the actual price. The maximum price that a person is willing to pay for a unit of a product depends on the opportunity cost of his consumption alternatives. Example: suppose matthew is offered the chance to purchase an apple.
