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lec04slides - MONETARY MEASURES OF GAIN AND LOSS 1...

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1 MONETARY MEASURES OF GAIN AND LOSS 2 Consumer’s Demand Curve Market demand curve is the sum of individual demand curves.
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3 Marginal Willingness to Pay = MWTP x = Amount of money that a person is willing to pay to obtain an extra unit of good X. Long Distance Calls MWTP 1 $8.00 26 . 0 0 34 . 5 0 43 . 0 0 52 . 0 0 61 . 5 0 4 Law of Diminishing MWTP MWTP x decreases as consumption of good X increases.
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5 Graph MWTP: P Q 1 2 3 4 5 6 8.00 6.00 4.50 3.00 2.00 1.50 6 Graph MWTP: P Q 1 2 3 4 5 MWTP 8.00 6.00 4.50 3.00 2.00 1.50
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7 Graph MWTP: P Q 1 2 3 4 5 P MWTP = D 8.00 6.00 4.50 3.00 2.00 1.50 8 Demand Curve = MWTP curve Demand curve tells: At any price, how much will person buy. At any quantity, what is person’s MWTP.
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9 Consumer obtains benefits in excess of amount paid. Suppose price = $1.50 Calls MWTP Price paid Surplus 1 8.00 1.50 6.50 2 6.00 1.50 4.50 3 4.50 1.50 3.00 43 . 0 01 . 5 0 1 . 5 0 5 2.00 1.50 0.50 61 . 5 . 5 0 0 16.00 14 Consumer surplus = Area under demand curve and above price P Q 1 2 3 4 5 6 MWTP = D
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16 Original Consumer Surplus P Q p 1 17 Q P P 2 P 1 D New Consumer Surplus
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18 Q P P 2 P 1 D Change in Consumer Surplus 19 Example: Gas Tax D S 1.00 1.20 10 b 8 b
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This note was uploaded on 11/28/2010 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

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lec04slides - MONETARY MEASURES OF GAIN AND LOSS 1...

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