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WILLINGNESS TO PAY: The price or dollar amount that someone is willing to give up or pay to acquire a good or service. Willingness to pay is the source of the demand price of a good. However, unlike demand price, in which buyers are on the spot of actually giving up the payment, willingness to pay does not require an actual payment. This concept is important to benefit-cost analysis, welfare economics, and efficiency criteria, especially Kaldor-Hicks efficiency. A related concept is willingness to accept.

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Lesson 6: Supply | Unit 2: Law of Supply Page: 6 of 19

Topic: Production Cost <=PAGE BACK | PAGE NEXT=>

An important question is: Why does the law of supply work?
  • The answer rests with production cost. In particular, the law of supply exists because of the law of increasing opportunity cost.
  • As we saw with production possibilities analysis, by increasing the production of a good, the opportunity cost of production increases.
  • Production cost increases as we increase production. To supply a larger quantity, producers need to cover these higher production costs with a higher price.

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OLIGOPOLY, BEHAVIOR

Oligopolistic industries share several behavioral tendencies, including: (1) interdependence, (2) rigid prices, (3) nonprice competition, (4) mergers, and (5) collusion. In other words, each oligopolistic firm keeps a close eye on the decisions made by other firms in the industry (interdependence), are reluctant to change prices (rigid prices), but instead try to attract customers from the competition using incentives other than prices (nonprice competition), and when they get tired of competing with their competitors they are inclined to cooperate formally and legally (mergers) or informally and illegally (collusion).

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Today, you are likely to spend a great deal of time at a dollar discount store hoping to buy either a really, really exciting, action-filled video game or a coffee cup commemorating the moon landing. Be on the lookout for jovial bank tellers.
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A communal society, a prime component of Karl Marx's communist philosophy, was advocated by the Greek philosophy Plato.
"Defeat is simply a signal to press onward."

-- Helen Keller, lecturer, author

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