Chapter 7 - Consumers, producers, and the efficiency of markets

Chapter 7 - Consumers, producers, and the efficiency of markets

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Consumers, Producers, and the Efficiency of Markets 7
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Consumer Surplus Welfare economics How the allocation of resources affects  economic well-being Willingness to pay Maximum amount that a buyer will pay for  a good Consumer surplus Amount a buyer is willing to pay for a  good Minus amount the buyer actually pays for  2
Background image of page 2
Table Four possible buyers’ willingness to pay 1 3  Buyer  Willingness to pay John Paul George Ringo  $100 80 70 50
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Consumer Surplus Using the demand curve to measure  consumer surplus Consumer surplus Closely related to the demand curve Demand schedule Derived from the willingness to pay of the  possible buyers At any quantity Price given by the demand curve Willingness to pay of the marginal buyer 4
Background image of page 4
Figure The demand schedule 1 5 The table shows the demand schedule for the buyers in Table 1. Price Buyers Quantity Demanded More than $100 $80 to $100 $70 to $80 $50 to $70  $50 or less None  John  John, Paul John, Paul, George  John, Paul, George,  Ringo 0 1 2 3 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure $100 80 70 50 Price of Albums The demand curve 1 6 The graph shows the corresponding demand curve. Note that the height of the demand curve reflects buyers’ willingness to pay 0 4 3 1 2 Quantity of Albums John’s willingness to pay Paul’s willingness to pay George’s willingness to pay Ringo’s willingness to pay Demand
Background image of page 6
Consumer Surplus Using the demand curve to measure  consumer surplus Demand curve Reflects buyers’ willingness to pay Measure consumer surplus Consumer surplus in a market Area below the demand curve and above  the price 7
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure $100 80 70 50 Price of Albums Measuring consumer surplus with the demand curve 2 8 In panel (a), the price of the good is $80, and the consumer surplus is $20. In panel (b), the price of the good is $70, and the consumer surplus is $40. 0 4 3 1 2 Quantity of Albums John’s consumer surplus ($20) Demand (a) Price = $80 $100 80 70 50 Price of Albums 0 4 3 1 2 Quantity of Albums John’s consumer surplus ($30) (b) Price = $70 Paul’s consumer surplus ($10) Total consumer surplus ($40) Demand
Background image of page 8
Consumer Surplus How a lower price raises consumer  surplus  Buyers - always want to pay less Initial price, P 1 Quantity demanded Q 1 Given consumer surplus New, lower price, P 2 Greater quantity demanded, Q 2 New buyers Increase in consumer surplus 9
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure How the price affects consumer surplus 3 10 Price In panel (a), the price is P 1 , the quantity demanded is Q 1 , and consumer surplus equals the area of the triangle ABC. When the price falls from P 1 to P 2 , as in panel (b), the quantity demanded rises from Q 1 to Q 2 , and the consumer surplus rises to the area of the triangle ADF. The increase in 0 Quantity (a) Consumer surplus at price P 1 (b) Consumer surplus at price P
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/26/2010 for the course ECON 002 taught by Professor Eudey during the Spring '08 term at UPenn.

Page1 / 37

Chapter 7 - Consumers, producers, and the efficiency of markets

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online