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Principles of Economics- Mankiw (5th) 139

Principles of Economics- Mankiw (5th) 139 - CHAPTER 7...

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CHAPTER 7 CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 145 equals the total area of the two rectangles: John’s consumer surplus at this price is $30 and Paul’s is $10. This area equals a total of $40. Once again, this amount is the consumer surplus we computed earlier. The lesson from this example holds for all demand curves: The area below the demand curve and above the price measures the consumer surplus in a market. The reason is that the height of the demand curve measures the value buyers place on the good, as measured by their willingness to pay for it. The difference between this willingness to pay and the market price is each buyer’s consumer surplus. Thus,
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