Demand and Marginal Benefits Flashcards
explain how a competitive market allocates resource to be efficient
the market will allocate resources in such a way that at the margin, the price consumers pay matches the cost of resources used to produce a particular good/service
what is efficiency and how is it used by economists
producing the goods that society wants at the lowest possible cost
economists use efficiency so resources aren’t wasted and scarce resources are best used
what does the demand or willingness to pay curve reflect
the max price a consumer is prepared to pay for a good and marginal benefit at each price
what is marginal benefit
the maximum amount consumers will pay for an additional good or service
what is consumer surplus
the difference between what the consumer is prepared to pay verse what they actually pay in the market
how do you calculate consumer surplus
CS = Total benefits - expenditure
when does consumer surplus increase
if market price falls there will be an increase in consumer surplus because consumers will buy more at a lower price (welfare increases)
