Micro Econ Chapter 3 Lecture Notes PDF

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Chapter 3● Economic Surplus: the total benefits minus the total costs flowing from a decision ● Economic Outcome: the efficient outcome yields the largest possible economic surplus ● Consumer Surplus: The economic surplus you get from buying something ○ The area below the demand curve and above the ...

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Chapter 3 ● Economic Surplus: the total benefits minus the total costs flowing from a decision ● Economic Outcome: the efficient outcome yields the largest possible economic surplus ● Consumer Surplus: The economic surplus you get from buying something ○ The area below the demand curve and above the price Consumer Surplus = Marginal Benefit - Price ● Producer Surplus: the economic surplus you get from selling something ○ The area above the supply curve and below the price Producer Surplus = Price - Marginal Cost ● Economic Surplus: the sum of the consumer surplus and producer surplus ○ An efficient outcome is one that creates the largest possible economic surplus. ○ Economic surplus in the entire market is the area between the marginal benefit in the marginal cost curves, out to the quantity. ● Efficient Production: Producing a given quantity of output at the lowest possible cost, which requires producing each good at the lowest marginal cost ● Efficient Allocation: Allocating goods to create the largest economic surplus, which requires that each good goes to the person who will get the highest marginal benefit from it ● Efficient Quantity: The quantity that produces the largest possible economic surplus ● Market Failure: Occurs when the forces of supply and demand lead to an inefficient outcome ● Deadweight Loss: How far is economic surplus falls below the efficient outcome Deadweight Loss = Economic Surplus at Efficient Quantity - Actual Economic Surplus...