surplus - Consumer's Surplus 93 Consumer's Surplus A. Basic...

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Consumer’s Surplus 93 Consumer’s Surplus A. Basic idea of consumer’s surplus 1. want a measure of how much a person is willing to pay for something. How much a person is willing to sacrifice of one thing to get something else. 2. price measures marginal willingness to pay, so add up over all different outputs to get total willingness to pay. 3. total benefit (or gross consumer’s surplus), net consumer’s surplus, change in consumer’s surplus. See Figure 14.1. B. Discrete demand 1. remember that the reservation prices measure the ‘‘marginal utility’’ 2. , , , etc. 3. hence, (since ) 4. this is just the total area under the demand curve. 5. in general to get the ‘‘net’’ utility, or net consumer’s surplus, have to subtract the amount that the consumer has to spend to get these benefits
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Consumer’s Surplus 94 r r r r r r 1 2 3 4 5 6 PRICE 123456 QUANTITY A Gross surplus r r r r r r 1 2 3 4 5 6 PRICE QUANTITY B Net surplus p Figure 14.1 C. Continuous demand. Figure 14.2.
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surplus - Consumer's Surplus 93 Consumer's Surplus A. Basic...

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