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Unformatted text preview: Aniko Oery University of California, Berkeley Section 13: Consumer Surplus, Producer Surplus and Economic Rent Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 Finally, after having derived the supply and demand functions, we will study welfare implications of different government interventions. Welfare can be measured by summing up the surplusses of producers and consumers. The difference between the maximum amount of total surplus possible (at efficient allocation) and the observed total surplus is called dead weight loss. In Economics our goal is always to do a welfare analysis, so you will see these concepts again and again throughout your studies. In addition, we will discuss the concept of economic rent today. It shows that firms that have access to an extraordinary input can ”make money” even though we have learned that in the long run competitive equilibrium firms make zero economic profits. 1 Consumer Surplus The consumer surplus is defined as the total willingness to pay of consumers minus the price the consumers pay. If we assume that the demand curve represents the marginal willingness to pay (MWTP), the consumer surplus is just the area below the demand curve and above the price: CS = Z ∞ p D ( x ) dx = Z D ( p ) P ( x ) dx- p · D ( p ) ....
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This note was uploaded on 01/19/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.
- Spring '08