16 Wednesday, October 04, 2006

16 Wednesday, October 04, 2006 - Raleigh P P Y-intercept...

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Wednesday, October 04, 2006 Microeconomics CHAPTER 7 WELFARE ECONOMICS – study of how the allocation of resources affect economic well being CONSUMER SURPLUS – A buyer’s willingness to pay minus the amount the buyer actually pays LAWN CARE Price P Per $25 Lawn $22 Dave $19 Phil $16 Sue $13 Shirley $10 Greg Price $10 $7 Jerry D 0 1 2 3 4 5 6 Q # of lawns cut At a price of $10 per lawn, people are willing to pay to have there lawns cut But some would be willing to pay more = the existence of consumer surplus Customer Consumer Surplus Dave $12 Phil $9 Sue $6 Shirley $3 Craig $0 $30 = market consumer surplus
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Wednesday, October 04, 2006 If price falls consumer surplus increases for two reasons 1. Those already buying good will receive additional consumer surplus because they pay less for products than before a. Dave and Phil in a price drop from $19-$10 2. Since price is now lowered, some new buyers enter the market and receive consumer surplus on the additional units of output a. Sue and Shirley in a price drop from $19-$10
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Unformatted text preview: Raleigh P P Y-intercept $25 Reason we dont Consumer Surplus have to worry about A = 1/2 b h P $10 D D Q Q 500 Q Most markets are relativity large, involving numerous buyers and each buyer is likely to have a different willingness to pay, the area above the price and below the demand curve is an extremely good approximation of consumer surplus. P Consumer surplus at P1 Additional consumer surplus to buyers at P2 already in market at P1 P1 Consumer surplus to new buyers at P2 P2 D Q Wednesday, October 04, 2006 PRODUCER SURPLUS COST is the value of everything seller up to produce the good of service Think of this as opportunity cost Willingness to accept or willingness to sell is the minimum amount that a producer will accept as payment for a good or service as is equivalent to opportunity cost PRODUCER SURPLUS is the difference between the price a seller receives and his willingness to accept...
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This note was uploaded on 03/20/2008 for the course EC 201 taught by Professor Xasdf during the Fall '08 term at N.C. State.

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16 Wednesday, October 04, 2006 - Raleigh P P Y-intercept...

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