Hussein A. Appendix A.

Question 1

A2. Basic assumptions?

Answer 1

1. Freedom of choice.
2. Perfect information
3. Competition
4. Mobility of resources
5. Ownership

Question 2

A3. Demand Curve?

Answer 2

Max price costumers WTP for a given quantity of X. WTP will decline as Quantity of X avaliable to market increases. = consistent with Law of Demand.

Question 3

A3. Net Social Surplus for Producer?

Answer 3

Qe - cost is minimized + Cons. diff of WTP/Actual Pays = Surplus is maximized.

Question 4

A3. Net Surplus?

Answer 4

Composed of Consumer & Producer’s surpluses. = both is maximized. (Ideal market system)

Question 5

A3. Pareto Optimality?

Answer 5

Move in any direction can’t be made without making one member in Society worse of. (C or P)

Question 6

A3. Invisible Hand?

Answer 6

Economic efficiency - net benefit of P/C taken together is maximized. Any deviations from E - associated to reduction, not gain, in Net Benefits.

Question 7

A4. MPB - Marginal private benefit?

Answer 7

Consumer: Prise measure their WTP for last unit of E output.

Question 8

A4. MPC - Marginal private cost?

Answer 8

Producer: producing last unit of output vs measure the minimum price they are Willing to Accept, in offering last unit.

Question 9

A4. MPB?

Answer 9

Marginal private benefit.

Question 10

A4. MPC?

Answer 10

Marginal private cost - P.

Question 11

A4. Pe = MPB = MPC ?

Answer 11

No difference between private/social coat and benefits/costs.

Question 12

A5. Riccardian Scarcity?

Answer 12

A steady increase in rent & real cost, as quality of X decline.

Question 13

A7. Invisible Hand Theory?

Answer 13

Ind. working in their self-intrest and will promote welfare of the whole of Society.

Question 14

A7. Measures of resource Scarcity?

Answer 14

1. Price information + demand & supply.
2. Ownership rights + Demand & Supply = MSB o MSC.

Question 15

A7. Market price?

Answer 15

Measure of value society attach to a product. (P=MSB)

Question 16

A7. Market Equilibrium price?

Answer 16

Measure of social cost, of using basic resources (labor, capital,land) to produce X. [Pe = MSC]

Question 17

Market Price - Pe?

Answer 17

'’true’’ measure of resource scarcity, no diff between social value & what people are WTP & social opportunity cost of resource used to produce X ??