Chap4 - Krugman and Wells Chapter 4 Steven J Haider EC201...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Krugman Krugman and Wells and Wells Chapter 4 Chapter 4 Steven J. Haider EC201 Spring 2010
Background image of page 1

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

View Full Document Right Arrow Icon
EC201-4-p2 Overview Overview Recall from Chap. 2 that Tom and Hank could benefit from trade They each specialized in producing the good in which they had a comparative advantage Both gained from trade , even though one had an absolute advantage in producing both goods Recall from Chap. 3 we learned how competitive markets work Participating in the market is trading: you use money, perhaps earned from your job, to buy (trade for) other goods This chapter Measure the benefits from the existence of markets (a type of trade): Consumer, Producer, and Total Surplus Markets are efficient Caution: we’re now using our supply/demand model, which will only make sense if you know how the model works. Do problems !
Background image of page 2
EC201-4-p3 Willingness to Pay and Demand Willingness to Pay and Demand Willingness to pay : maximum price a person is willing to pay for a good Example : willingness to pay for a used textbook Assume individuals are willing to buy only one Assume individuals buy when price willingness to pay (= by convention) We can use this information to derive a market demand curve Note: step function because there are only five consumers
Background image of page 3

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

View Full Document Right Arrow Icon
EC201-4-p4 Slightly different development Slightly different development Deriving the market demand from the individual demand curves Individual demand: a graph of the willingness to pay for each individual Market demand : horizontal sum of individual demand curves
Background image of page 4
EC201-4-p5 Calculating consumer surplus Calculating consumer surplus If the price was $30, only Aleisha, Brad and Claudia would
Background image of page 5

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

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 19

Chap4 - Krugman and Wells Chapter 4 Steven J Haider EC201...

This preview shows document pages 1 - 6. Sign up to view the full document.

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