Principles of Economics- Mankiw (5th) 138

Principles of Economics- Mankiw (5th) 138 - puted earlier...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
144 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE the willingness to pay of the marginal buyer, the buyer who would leave the market first if the price were any higher. At a quantity of 4 albums, for instance, the de- mand curve has a height of $50, the price that Ringo (the marginal buyer) is will- ing to pay for an album. At a quantity of 3 albums, the demand curve has a height of $70, the price that George (who is now the marginal buyer) is willing to pay. Because the demand curve reflects buyers’ willingness to pay, we can also use it to measure consumer surplus. Figure 7-2 uses the demand curve to compute consumer surplus in our example. In panel (a), the price is $80 (or slightly above), and the quantity demanded is 1. Note that the area above the price and below the demand curve equals $20. This amount is exactly the consumer surplus we com-
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: puted earlier when only 1 album is sold. Panel (b) of Figure 7-2 shows consumer surplus when the price is $70 (or slightly above). In this case, the area above the price and below the demand curve Table 7-2 T HE D EMAND S CHEDULE FOR THE B UYERS IN T ABLE 7-1 P RICE B UYERS Q UANTITY D EMANDED More than $100 None $80 to $100 John 1 $70 to $80 John, Paul 2 $50 to $70 John, Paul, George 3 $50 or less John, Paul, George, Ringo 4 Price of Album 50 70 80 $100 Quantity of Albums Demand 1 2 3 4 Johns willingness to pay Pauls willingness to pay Georges willingness to pay Ringos willingness to pay Figure 7-1 T HE D EMAND C URVE . This figure graphs the demand curve from the demand schedule in Table 7-2. Note that the height of the demand curve reflects buyers willingness to pay....
View Full Document

Ask a homework question - tutors are online