Chap7

Chapter 7 was pretty easy. Some of it seemed like a review. It went over the topic of welfare economics. Welfare economics is how the allocation of resources affects economic well-being. To study the welfare of buyers and sellers in a market economist use Consumer and Producer Surplus. Consumer surplus is the amount a buyer is willing to pay minus the price he actually pays. The most obvious scenario is an auction. In the example given in the textbook that one dude was able to get his Elvis CD for $90, even though he was willing to pay $100. Consumer surplus can be visually seen and calculated in a demand curve by finding the area below the demand curve and above the price. Producer Surplus is basically the same thing, the difference being that the price a seller is willing to get paid for depends on the sellers opportunity cost that include time, supplies, and other stuff. To visually see and calculate the producer surplus you just have to find the area below the price and above the supply curve. Total surplus is just the value to buyers of a specific good minus the cost to sellers. In a supply and demand curve the area above the equilibrium price is the consumer surplus and the area below is the producer surplus.