lecture 9. consumer & producer surplus

lecture 9. consumer & producer surplus - Consumer and...

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© 2007 John M. Abowd, all rights reserved Micro Consumer and Producer Surplus (Preview) Prof. John M. Abowd September 24, 2007
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© 2007 John M. Abowd, all rights reserved Micro Themes of Today’s Lecture Consumer surplus Producer surplus Total surplus in the market Pareto efficiency Deadweight loss
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© 2007 John M. Abowd, all rights reserved Micro Demand Definition: maximum quantity that consumers are willing to purchase at the indicated price. But, as we saw in the auctions, the demand curve can be formed by asking the question: What is the maximum price each consumer is willing to pay? Then, order the maximum prices from highest to lowest to produce the demand curve.
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© 2007 John M. Abowd, all rights reserved Micro An Alternative View of the Demand Curve An alternative interpretation of the demand curve is the consumer’s marginal willingness to pay for the quantity specified. Thus the demand curve is also the maximum amount that consumers are willing to pay per unit for the quantity shown.
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© 2007 John M. Abowd, all rights reserved Micro Demand Curve Derived from Willingness to Pay Demand Curve 0 5 10 15 20 25 30 35 40 45 50 55 60 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quantity Price
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© 2007 John M. Abowd, all rights reserved Micro Individual Consumer Surplus An individual buyer who pays less than
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