MarketEfficiency - ECON 200 Clower Spring 2010 Efficiency...

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Unformatted text preview: ECON 200 Clower Spring 2010 Efficiency and applications I. CONSUMER SURPLUS A. Concept of ValueWe looked at this concept from the perspective of an individual consumer : i. We cannot measure how much someone likes a good. But we can talk about how much they value a good. ii. Marginal Value: The MV of good X is the amount a consumer is willing to give up of other goods in order to consume an additional unit of good X. iii. Postulate 4: Marginal value of a good falls as the quantity consumed of the good increases. iv. Total value of good X is the amount a person would be willing to give up of other goods to have all of the good X rather than have none of the good at all. B. Willingness to pay This measure, which your book uses, looks at value from the perspective of several consumers. It is synonymous with the concept of value we talked about earlier. i. Willingness to pay the maximum amount that a buyer will pay for a good Buyer Willingness to pay John $100 Paul 80 George 70 Ringo 50 ii. As the book describes we can conceptually think of this as the point at which a buyer might stop bidding for an item in an auction. Once the bidding gets past this point the buyer refuses to pay anymore for the item. iii. Consumer surplus The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it....
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This note was uploaded on 11/19/2010 for the course ECON ECON200 taught by Professor Ericka during the Spring '10 term at University of Washington.

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MarketEfficiency - ECON 200 Clower Spring 2010 Efficiency...

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