L8 - Outline of the rest of the course 2nd quarter...

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1 Outline of the rest of the course 2 nd quarter: technical background of the competitive markets (and other) models preferences: foundations of demand cost: foundations of supply a more in-depth analysis of equilibrium in a competitive market Second half of the course: what happens when we don’t have perfectly competitive markets? other market forms without price-taking producers other market failures (information, external effects etc.)
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Economics 101: Principles of  Microeconomics Professor Jo Hertel Lecture 6: Consumer and producer surplus Consumer surplus Producer surplus Total surplus and market efficiency Application: Free downloads Taxes, surplus, and deadweight loss
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3 Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Consumer and producer surplus Consumer surplus is the net gain to an individual buyer from the purchase of a good. Producer surplus is the net gain to an individual seller from the sale of a good. Together, consumer and producer surplus are a measure of how much market participants benefit from the existence of the market (at a particular price).
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4 Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Consumer surplus and the demand   curve As discussed previously, the demand curve reflects willingness to pay . Individual consumer surplus is the net gain to an individual buyer from the purchase of a good. It is equal to the difference between a buyer’s willingness to pay and the price paid. Total consumer surplus is the sum of individual consumer surpluses of all the buyers of the good.
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5 10 24 Example: Consumer surplus in the  textbook market At a price of $35, 3 people buy a book Aleisha: $59- $35= $24 Brad: $45- $35= $10 Claudia: $35- $35= $0 Total c. surplus: $34 Willingness to pay Aleisha $59 Brad $45 Claudia $35 Darren $25 Edwina $10 quantity 1 2 3 4 5 59 45 35 25 10 price of books look at consumer surplus for those who buy
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6 Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition … etc. Consumer surplus more generally The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price.
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