Market Regulation: Willingness to Pay and Accept

This lecture discusses the concepts of willingness to pay (WTP) and willingness to accept (WTA) in the context of market regulation. The instructor begins by explaining the demand equation, where the quantity demanded is represented as Qd = 60 - P. The relationship between WTP and quantity is established, leading to a discussion on total cost and marginal cost of production. The instructor emphasizes the importance of calculating market equilibrium by equating WTP and WTA. The lecture further explores buyer and seller surpluses, illustrating how to calculate these using geometric areas under demand and supply curves. The impact of external costs on production is also analyzed, highlighting the difference between market equilibrium and social optimum. The instructor concludes by discussing the implications of external costs on total surplus and the need for regulatory interventions to achieve efficient production levels. The lecture provides a comprehensive overview of market dynamics and the role of regulation in addressing externalities.