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2010_G Con and Pro Surplus - Consumer and Producer Surplus...

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Consumer and Producer Surplus Mr. Green’s Economics 2010 Dixie State College Economics 2010 Home Page
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Measuring Welfare How do I measure how well off I am? How do I measure how well off I am? My own (and your own) choice of what I (you) want and need? Someone else’s vision of what you and I and others ought to want and what we really need?
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Measuring Human Wants and Needs . . . the principle of (freedom) requires liberty of  tastes and pursuits, of framing the plan of our life to  suit our own character, of doing as we like, subject to  such consequences as may follow, without  impediment from our fellow creatures, so long as  what we do does not harm them, even though they . .  . think our conduct foolish, perverse, or wrong.   John  Stuart Mill, “On Liberty,” Hackett Publishing Company, Inc., 1978, p. 12.
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Measuring Welfare What if my conduct is perverse, foolish, or What if my conduct is perverse, foolish, or wrong? wrong?
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Consumer Surplus P Q Guitars D John $300 Paul $400 George $500 Ringo $600 1000
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Consumer Surplus P Q Guitars D John $300 Paul $400 George $500 Ringo $600 1000 The Consumer Surplus Triangle
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Consumer Surplus Area of the Triangle = 1 2 Base x Height $600 $300 B = 1000 H = $300 Consumer Surplus = $300 x 1000 = 2 = $150,000
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Increase in Consumer Surplus P Q Guitars D John $300 Paul $400 George $500 Ringo $600 1000 2000 Surplus to Previous Consumers Surplus to New Consumers $200 Gaylord, the fifth Beatle $250
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Producer Surplus P Q Guitars S John D. Rockefeller $100 Andrew Carnegie $200 Martha Stewart $300 Sam Walton $400 2000 The Producer Surplus Triangle
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Producer Surplus $400 $100 B = 2000 H = $300 $300 x 2000 = 2 = $300,000
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Increase in Producer Surplus P Q Guitars S John D. Rockefeller $100 Andrew Carnegie $200 Martha Stewart $300 Sam Walton $400 2000 $500 3000 Surplus to Previous Producers Surplus to New Producers Donald Trump $450
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Benevolent Dictator Welfare Economics Welfare Economics Maximizing Human Well Being Maximizing Human Well Being Pareto Optimality Pareto Optimality Welfare is maximized when society  Welfare is maximized when society 
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