Lecture 8 Flashcards
scare resources might be allocated by:
-Market price
-command
-majority rule
-first come, first serve
-lottery
Value is…
Price is…
Value is what we get, price is what we pay
describe value
The value for one more unit of a good or service is its marginal benefit.
value is measured as the MAX price that a person is willing to pay.
what does willingness to pay determine
Determines demand, a demand curve is a marginal benefit curve
What is consumer surplus
-excess benefit received from a good over the amount paid for it.
how to calculate consumer surplus
-the area below the demand curve, above market price @ level of output (Q)
1/2BH
Supply and Marginal cost
-firm’s goal is to make a profit
-firms must sell their output for a price that exceeds the cost of production.
Cost is…
Price is…
Cost is what the producer gives up; price is what the producer receives.
-marginal cost is the minimum a firm is willing to accept
What is a producer surplus?
The excess amount received from the sale of a good over the cost of producing it.
Price received for good - minimum-supply price (marginal cost), summed over quantity sold
How to calculate producer surplus
area above the supply curve, below market price @ level of production (Q)
1/2BH