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Chapter_5 - Ch.5:EfficiencyandEquity ConsumerSurplus...

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    Ch. 5: Efficiency and Equity Methods of Resource Allocation Consumer Surplus Producer Surplus Efficiency Equity or Fairness
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    Methods of Resource Allocation Scarce resources might be allocated by using any or some  combination of the following methods: Market price Command Majority rule Contest First-come, first-served Sharing equally Lottery Personal characteristics Force
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    Demand and Marginal Benefit Value  is what consumers get, price  is what  consumers pay The value   of one more unit of a good or service is its  marginal benefit A demand curve   is a   marginal benefit (MB) curve   because MB = value = maximum price willing to pay
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    Individual Demand and Market Demand The relationship between the price of a good and the quantity  demanded by one person  is called individual demand The relationship between the price of a good and the quantity  demanded by all buyers in the market  is called market demand
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    Consumer Surplus Consumer surplus  is the value of a good minus the price  paid for it, summed over the quantity bought It is measured by the area  under the demand curve  and  above the price paid, up to the quantity bought
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Total Total benefit benefit Amount paid Consumer surplus Q Q 0 10 20 30 40 0.50 1.00 1.50 2.00 2.50 P P D = MB Lisa’s consumer surplus from 10th pizza Market price Fig. 5.2a Demand & Consumer Surplus
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    Supply and Marginal Cost Opportunity Cost  is what producers pay, price  is what  producers receive
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