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Class Notes - 10-1-07

Class Notes - 10-1-07 - Microeconomics Class Notes C...

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Microeconomics - Class Notes – 10/1/07 C. Consumer Surplus * Consumer Surplus = Marginal Benefit (WTP) – Price 1. Individual Calculation (Price = $3) Quantity Marginal Benefit Consumer Surplus 1 10 (10-3) 7 2 7 4 3 5 2 4 2 Would not purchase (X) Total Consumer surplus = $13 We want marginal benefit We can calculate Marginal Benefit from WTP You don’t want to calculate WTP from Marginal Benefit (it’s just positive instead of negative like it would be if your calculating marginal benefit from WTP) Marginal benefit IS NOT willingness to pay Marginal benefit is what you’re willing to pay for just that unit (the second unit purchased or the third unit purchased) Willingness to pay is what your’re willing to pay for the total units (like 2 units) 2. Market Consumer Surplus from Demand Calculation (See graph in binder) a. Example: (See graph in binder) D P = 200 – 4Q S P = 20 + 2Q Q = 30 , P = $80 - Area of a triangle: (1/2) * (base) * (height) o Consumer Surplus: (1/2) * (30) * (200-80) o Consumer Surplus: $1800 - Consumer Surplus is important to know: o If the market is efficient o
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