lecture 9. consumer & producer surplus

lecture 9. consumer & producer surplus - ©2007 John M...

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Unformatted text preview: ©2007 John M. Abowd, all rights reserved M i c r o Consumer and Producer Surplus (Preview) Prof. John M. Abowd September 24, 2007 ©2007 John M. Abowd, all rights reserved M i c r o Themes of Today’s Lecture ◆ Consumer surplus ◆ Producer surplus ◆ Total surplus in the market ◆ Pareto efficiency ◆ Deadweight loss ©2007 John M. Abowd, all rights reserved M i c r o 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. ©2007 John M. Abowd, all rights reserved M i c r o 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. ©2007 John M. Abowd, all rights reserved M i c r o Demand Curve Derived from Willingness to Pay Demand Curve 5 10 15 20 25 30 35 40 45 50 55 60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Quantity Price ©2007 John M. Abowd, all rights reserved M i c r o Individual Consumer Surplus ◆ An individual buyer who pays less than...
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This note was uploaded on 02/14/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell.

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lecture 9. consumer & producer surplus - ©2007 John M...

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