Summary
Chapter 7 is Consumers, Producers, and the Efficiency of Markets. This chapter explains consumer surplus, producer surplus and the total surplus in the market.
Consumer surplus
- the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Producer surplus
- the amount a seller is paid for a good minus the seller’s cost of providing it
Total surplus= consumer surplus + producer surplus= (value to byers- amount paid by buyers)+ (amount received by sellers- cost to sellers)
amount paid by buyers= amount received by sellers- cost to sellers
Total surplus= value to buyers- cost to sellers
Efficiency of Market
- Free markets allocate the supply of goods to the buyers who value them most, as measured by their willingness to pay.
- Free markets allocate the demand for goods to the sellers who can produce then at the lowest cost.
- Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.
Definitions
Welfare economics– the study of how the allocation of resources affects economic well-being
Willingness to pay– the maximum amount that a buyer will pay for a good
Consumer surplus– the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Cost– the value of everything a seller must give up to produce a good
Producer surplus– the amount a seller is paid for a good minus the seller’s cost of providing it
Efficiency– the property of a resource allocation of maximizing the total surplus received by all members of society
Equality– the property of distributing economic prosperity uniformly among the members of society
Review
I did all questions correctly! Excellent!
