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Principles of Economics- Mankiw (5th) 140

Principles of Economics- Mankiw (5th) 140 - 146 PA R T T H...

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146 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE HOW A LOWER PRICE RAISES CONSUMER SURPLUS Because buyers always want to pay less for the goods they buy, a lower price makes buyers of a good better off. But how much does buyers’ well-being rise in response to a lower price? We can use the concept of consumer surplus to answer this question precisely. Figure 7-3 shows a typical downward-sloping demand curve. Although this demand curve appears somewhat different in shape from the steplike demand curves in our previous two figures, the ideas we have just developed apply nonetheless: Consumer surplus is the area above the price and below the demand curve. In panel (a), consumer surplus at a price of P 1 is the area of triangle ABC. Quantity (b) Consumer Surplus at Price P 2 Quantity (a) Consumer Surplus at Price
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