Econ11Fall2007NotesForLecture_10Oct8

Econ11Fall2007NotesForLecture_10Oct8 - Lecture X Notes...

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Lecture X Notes: October 8, 2007, Quiz Wed, DSS students report to Economics Office, Monroe Hall, Room 340 I. Consumer’s Surplus and Marketing II. Using Consumer's Surplus: Subsidies & Welfare III. Labor Supply & Consumer's Demand Theory "Trick" IV. Consumer Surplus and Choice Of Places To Live I. Consumer's Surplus & Marketing A. Total benefit, total expenditure and price 1. Price reflects marginal benefit 2. Price x quantity = total expenditure 3. Area under demand curve = total benefit 4. Consumer's surplus = total benefit - expenditure B. Example: buying donuts for $.40 each 1. Consumer's surplus = total benefit - expenditure $/Donut .8 .7 Consumer Surplus Triangle .6 0.4(4.5)/2 = $1.80/2 = $0.90 .5 .4 .3 .2 .1 0 D DONUTS 1 2 3 4 5 6 7 8 9 Donuts Per Week C. "Donuts of the week" club for $2.50 & P Donuts = 0 1. Consumer's surplus = benefit of 9 Donuts – club fee 2. CS = 0.8(9)/2 – 2.50 = $3.60 – 2.50 = $1.10 2. Compare CS of $.40 per donut with $2.50 for club.. $0.90 < $1.10 so join the club & eat 9 donuts/ II. Using Consumer's Surplus: Subsidies & Welfare
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A. Fred & Ann demand donuts at price of $0.60 1. Price reflects marginal benefit
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