Mankiw - Chapter_07 - Chapter 7 Consumers, Producers, and...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics Chapter 7 Consumers, Producers, and the Efficiency of Markets 7.1 Introduction z Welfare economics : the study of how the allocation of resources affects economic well-being z We examine (1) the benefits that buyers and sellers receive from taking part in a market and (2) how society can make these benefits as large as possible. ± The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers. 7.2 Consumer surplus We focus on the benefits that buyers receive from participating in a market 7.2.1 Willingness to pay z Willingness to pay , as an expression of (a degree of) a buyer’s preference , is the maximum amount that the buyer will pay for a good. z Consumer surplus (CS): the amount a buyer is willing to pay for a good minus the amount the buyer actually pay for it ; CS measures the benefit to buyers of participating in a market. 7.2.2 Using the demand curve to measure consumer surplus z For all demand curves , the area below the demand curve and above the price measures the consumer surplus in a market. In other words, the difference between the willing to pay and the market price is each buyer’s consumer surplus. z The total area below the demand curve and above the price is the sum of the consumer surplus of all buyers in the market for a good or service.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics
Background image of page 2
3 Mankiw, Principles of Economics Prepared by Moon Young BAEK Yonsei University, Economics 7.2.3 How a lower price raises consumer surplus [Figure 3] Suppose that the price falls from P1 to P2… 7.2.4 What does consumer surplus measure? z Using the concept of consumer surplus, we want to make a judgments about the desirability of market outcomes z Then, is CS a good measure of economic well-being? ± Yes. Because the CS measures the benefit that buyers receive from a good as the
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2010 for the course ECONOMICS 2009 taught by Professor Lee during the Spring '09 term at Yonsei University.

Page1 / 8

Mankiw - Chapter_07 - Chapter 7 Consumers, Producers, and...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online