ECO 05 - 6 OCT - Lecture 05 ECO 100Y5Y 6 October 2008 A...

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Lecture 05 6 October 2008 ECO 100Y5Y A. Cohen 1 E C O N O M I C S PARKIN BADE Lecture 05 6 October 2008 E C O N O M I C S PARKIN BADE Chapter 5 Efficiency & Equity MB and MC Refresher Marginal Benefit ( MB ) benefit from consuming 1 more unit maximum amount consumer willing to pay for 1 more unit read MB curve by starting with quantity and going “up” and “over” decreasing marginal benefit continued
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Lecture 05 6 October 2008 ECO 100Y5Y A. Cohen 2 Marginal Cost ( MC ) opportunity cost of producing 1 more unit minimum amount producers must receive to produce 1 more unit read MC curve by starting with quantity and going “up” and “over” increasing marginal cost continued Demand and Marginal Benefit Value is what consumers willing to pay Price is what consumers actually pay Demand curve is a MB curve MB = value = maximum willing to pay Consumer surplus = value of good – price triangular area under demand curve but above market price Amount paid Consumer surplus Q 0 10 20 30 40 0.50 1.00 1.50 2.00 2.50 P D = MB Lisa’s consumer surplus from 10th pizza Market price Fig. 5.2a Demand & Consumer Surplus
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Lecture 05 6 October 2008 ECO 100Y5Y A. Cohen 3 Supply and Marginal Cost Opportunity cost is what producers pay Price is what producers receive Supply curve is a MC curve MC = minimum producers must receive to
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