Lecture 13 14 2.14.06student

Lecture 13 14 2.14.06student - Lectures 13 and 14 Applying...

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Applying the Competitive Model Lectures 13 and 14
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Key topics 1. consumer surplus 2. producer surplus 3. competition maximizes surplus 4. policies that shift supply curves 5. policies that create a wedge between supply and demand 1. comparing both types of policies: imports
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Consumer’s well-being using a consumer's utility function is not practical for 2 reasons: we don't know individuals' utility functions we cannot compare utilities across individuals instead, we measure consumer welfare in dollars easier to measure than utility can compare dollars across individuals
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Measuring consumer well-being consumer surplus (CS) from a good = benefit a consumer gets from consuming it (in $'s) minus its price how much more you'd be willing to pay than you did pay for a good demand curve contains this information demand curve reflects a consumer's marginal willingness to pay : amount a consumer will pay for an extra unit
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Graph individual's CS area under individual's demand curve and above market price up to quantity that consumer buys
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Consumer Surplus 5 4 3 2 1 5 4 3 2 1 0 CS 2 = $1 CS 1 = $2 E 1 = $3 E 2 = $3 E 3 = $3 Price = $3 a b c q , Magazines per week p , $ per magazine (a) David’s Consumer Surplus Demand
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Consumer Surplus p 1 p , $ per trading card q 1 q , Trading cards per year Demand Expenditure, E Consumer surplus, CS Marginal willingness to pay for the last unit of output
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Bruce Springsteen’s Gift to His Fans 2002 average rock concert ticket price was $51 $75 that Bruce Springsteen and the E Street Band charged for their concerts was below the market clearing price when tickets went on sale at the Bradley Center in Milwaukee, 9,000 tickets sold in the first 10 minutes and all were gone after 20 minutes
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Scalpers some tickets were available from scalpers, ticket brokers, or on the Internet at higher prices a web site offered tickets for Dallas American Airlines Center concert for $540 to $1,015 according to a survey, the average price of a resold ticket at the Philadelphia First Union Center concert was $280
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Springsteen’s pricing says he set the price relatively low to give value to his fans (in addition, he may have helped promote his new album) assuming that he could have sold all the tickets at $280, he gave almost $3 million of consumer surplus to his Philadelphia fans — double the ticket revenue for that concert
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Effect of a price change on CS price increase reduces CS could be caused by leftward shift of supply curve new government tax
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Fall in Consumer Surplus from Roses as Price Rises
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Solved problem 2 linear demand curves go through the initial equilibrium e 1 one demand curve is less elastic than another at e 1 for which demand curve will a price increase cause largest consumer surplus loss?
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Producer surplus 1. supplier's gain from participating in a
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This note was uploaded on 08/01/2008 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

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Lecture 13 14 2.14.06student - Lectures 13 and 14 Applying...

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