THEME 1 Flashcards
Trade
Voluntary act between two parties, each giving something to the other in exchange of something in return.
Utility
Abstract concept reflecting the satisfaction an individual derives from an activity.
Name 2 advantages of the concept of utility:
Flexibility
Takes aspects other that monetary gains into account
Name a drawback/disadvantage of the concept of utility:
Difficult to use
Valuation
Monetary value that an individual attaches to a given activity, and that he would be able to pay.
What is the variable used to represent buyer’s valuation
V
What is buyer’s valuation (V)?
The maximum amount of money he is willing to pay
Or «willingness to pay»
and HAS THE ABILITY
What is the variable used to represent seller’s valuation?
C
What is the seller’s valuation (C)?
Lowest amount of money she is willing to accept in order to give up an item.
Related to the buyer’s cost
«willingness to accept»
Formule de total gains from trade
V-C
Does the price have an effect in total gains from trade?
No
Formule de gain (or surplus) for the buyer:
V-P
Formule de gain (or surplus) for the seller:
P-C
Trade will take place if … (Rapport = ≥ > ≤ < entre des variables)
V ≥ C
The buyer and seller will agree to trade if … (Rapport entre variables)
C ≤ P ≤ V
Meaning of V(q)
Willingness to pay to obtain q units of the good
Or
Maximal amount of the money the buyer is willing to pay to obtain q units of the good
What’s the buyer’s marginal valuation ? (Def et formule)
Willingness to pay to obtain one extra unit of the good.
MV(q)=V(q)-V(q-1)
What is C(q)?
Seller’s total cost
Willingness to accept in exchange of q units of the good.
Minimum amount of money the seller is willing to accept in exchange for a total of q units.
What is seller’s marginal cost
Willingness to accept in exchange of one more unit of the good.
MC(q) = C(q) - C(q-1)
