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Presentation7 - Introductiontomicroeconomics...

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Introduction to microeconomics Wednesday, September 9, 2009
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How many can you list?
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The demand for beef in Texas is P= 10 – 1/100 Q d where price is per pound, and Quantity is in thousands  of pounds per month.  Supply of beef is P= 1 + 1/200 Q s What is the equilibrium price and quantity of beef?   Suppose a new BBQ sauce comes on the market  which is very popular and increases demand by 300  thousand pounds/month. What is the equation for the demand curve?  What’s the new equilibrium price and quantity?
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Consumer and Producer Surplus
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How much benefit do producers and consumers  receive from the existence of a market? How is the welfare of consumers and producers  affected by changes in market prices? How are these concepts related to the demand  and supply curve?  Consumer Surplus Producer Surplus Cost 
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A consumer’s  willingness to pay  for a good is the  maximum price at which he or she would buy that  good. Individual consumer surplus  is the net gain to an  individual buyer from the purchase of a good. It is  equal to the difference between the buyer’s  willingness to pay and the price paid.   Consumer Surplus and the Demand Curve
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$59 45 35 25 10 5 4 3 2 1 0 D $59 45 35 10 25 Aleisha Brad Claudia Darren Edwina Price of  book Quantity of books Potential buyers Willingne ss to pay Aleisha Brad Claudia Darren Edwina   The Demand Curve for Used Textbooks A consumer’s willingness  to pay for a good is the  maximum price at which he  or she would buy that  good.
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Consumer Surplus in the Used Textbook Market Price = $30 Aleisha’s consumer surplus:  $59-$39=$29 Brad’s consumer surplus:  $45-$30=$15 Claudia’s consumer  surplus: $35-$30=$5 The total consumer surplus  is given by the entire  shaded area - the sum of  the individual consumer  surpluses of Aleisha, Brad,  and Claudia - equal to $29  + $15 + $5 = $49. 5 4 3 2 1 0 Aleisha Brad Claudia Darren D Edwina $59 45 35 30 10 25 Price of  book Quantity of books
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Consumer Surplus 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. D Consumer surplus 1 million 0 $1,500 Price of  computers Quantity of computers Price = $1,500
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A fall in the price of a good increases consumer  surplus through two channels: A gain to consumers who would have bought at the  original price and  A gain to consumers who are persuaded to buy by  the lower price.  How Changing Prices Affect Consumer Surplus
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Consumer Surplus and a Fall in the Price of Used  Textbooks Darren’s consumer surplus Increase in Aleisha’s consumer surplus Increase in Brad’s
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This note was uploaded on 12/07/2009 for the course ECON 211 taught by Professor Na during the Fall '08 term at Rice.

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Presentation7 - Introductiontomicroeconomics...

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