Demand Curve That Do Not Reflect Consumers Full Willingness To Pay?

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Market Failures 93 In competitive markets have 2 causes: 1.Demand curves that do not reflect consumers full willingness to pay 2.Supply curve that do not reflect producers full cost of operation

Consumer Surplus
Difference between the maximum price a consumer will pay verse the lower price actually paid.

Producer Surplus 95
Difference between the minimum price a producer is willing to accept for a product and the higher price actually received

Equilibrium Price vs Quantity Supplied
Marginal benefit=marginal cost, maximum willingness to pay=minimum willingness to accept.

Cost Benefit Analysis Deciding whether or not to provide a good or service Marginal Benefit-Marginal Cost

Finding Demand Curve Vertically adding the prices that all members are willing to pay

CH. 7

National Income Accounting -BEA-Bureal of Economic Accounting -Allows economics and policy makers to -Assess the overall health of the economy -Track the long-run course of the economy -Formulate policies to safeguard and improve the economy

GDP Gross Domestic Product -Annual total output of its goods or services (aggregate output)

Aggregate output
-Dollar value of all final goods or services produces within a nation

Intermediate goods -Products that are purchased for reseal or further processing

Final goods -Products that are purchased by their end users

Added value
-Market value of a firms output minus the value of its input from others GDP EXCLUDES -Public transfer payments- Social security, walfare veterans -Private transfer payments- Money transfers between citizens -Stock Markets trans- Buying and selling of stocks/bonds -Second hand sales- Anything resold after 1st purchase

Two ways of looking at GDP Expenditures Approach (Output approach) View of GDP as the sum of all money spent Personal Consumption Expenditures (C) Consumption by households -Durable Goods(10%)-expected lives of +3 years -Nondurable goods(30%)- less than 3 years of life -Services(60%)-work done by humans for a service

Gross Private Domestic (Ig)
-All final purchases of machinery, equipment and tools for businesses
-All construction
-Changes in inventories

Net Private Domestic Only investment in form of added capital Net investment= Gross Investment- Depreciation

Government Purchases (G) Consumptions by gov to provide public goods/services

Net Exports (Xn) Net Exports= Exports-Imports

Calculation of GDP GDP=C+Ig+G+Xn Income Approach Income deprived from creating Factors -Wages -Rents -Interest -Proprietors Income -Corporate Profits +Stat Adjustments National Income All income earned through American-owned resources

Net Foreign Factor Income
Taking out the income Americans gain from supplying products abroad and add in the income that foreigners gain by supplying resources in the US

Consumption of Fixed Capital Depreciation of capital each year (machinery)

Net domestic Product Market value of GDP minus consumptions of fixed capital

NDP=GDP-Consumption of fixed capital

Personal Income (PI) All income received by households

Disposable Income A person’s income minus personal taxes

Real GDP 141 Corrects for price changes within adjusted base year

Nominal GDP Current GDP

GDP Price Index 141
Measure of the price of a specific collection of goods and services “market basket”

PRICE INDEX=Price of market basket in specific year/Price of same market basket in base year X100

CH. 8

Economic Growth 1. An increase in real GDP occurring over a time period 2. An increase in real GDP per capita over time period

Started in 1776 in Scotland with the Steam Engine

Real GDP Per Capita 150 Amount of real output per person in the country

Real GDP Per Capita=Real GDP/Population