ECON 202: CHAPTER 7

the maximum amount that a buyer will pay for a good.

(the amount a buyer is willing to pay for a good) - (the amount the buyer actually pays for it.) -measures the benefit buyers receive from participation in a market. -is closely related to the demand curve the total benefit of the buyer from participating in a market

area below the demand curve, but above the price

(the amount a seller is paid for doing a good) - (the sellers cost of providing it.) -the height of the supply curve is related to the sellers' costs. the total benefit sellers recieve

the supply curve

the seller who would leave the market first if the price were any lower

area below the price and above the supply curve

1)-A hypothetical character is an all knowing, all powerful, well intentioned dictator. 2)-Wants to maximize the economic well being of everyone in society 3)-Cannot increase economic well-being by changing the allocation of consumption among buyers or the allocation of production among sellers. 4)-Cannot raise total economic well-being by increasing or decreasing the quantity of the good.

the sum of consumer surplus + producer surplus a measure of economic well-being

the property of a resource allocation of maximizing the total surplus received by all members of society

the property of distributing economic prosperity uniformly among the members of society

Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. Free markets allocate the demand for goods to sellers who can produce them at the least cost. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.

ability to influence prices . can cause markets to be inefficient because it keeps the price and quantity away from the equilibrium of supply and demand.

Cause welfare in a market to depend on more than just the value to the buyers and the cost of the sellers.

occurs when there is an inefficient allocation of goods and services in a market. The inability of some unregulated markets to allocated resources efficiently When markets fail, public policy can potentially remedy the problem and increase economic efficiency