Principles of Economics- Mankiw (5th) 137

Principles of Economics- Mankiw (5th) 137 - CHAPTER 7...

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CHAPTER 7 CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 143 buy the album at a price more than his willingness to pay, and would be indiffer- ent about buying the album at a price exactly equal to his willingness to pay. To sell your album, you begin the bidding at a low price, say $10. Because all four buyers are willing to pay much more, the price rises quickly. The bidding stops when John bids $80 (or slightly more). At this point, Paul, George, and Ringo have dropped out of the bidding, because they are unwilling to bid any more than $80. John pays you $80 and gets the album. Note that the album has gone to the buyer who values the album most highly. What benefit does John receive from buying the Elvis Presley album? In a sense, John has found a real bargain: He is willing to pay $100 for the album but pays only $80 for it. We say that John receives consumer surplus of $20. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. Consumer surplus measures the benefit to buyers of participating in a market.
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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