Topic08_ConsumerProducer Surplus

Topic08_ConsumerProducer Surplus - Topic 08 08 Consumer and...

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Topic 08 Consumer and Producer Welfare Dr. Ratna K. Shrestha
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Topics to be Discussed Consumer and Producer Surplus The efficiency of a competitive market The welfare under Competitive Market 2
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Consumer Surplus Consumers buy goods because it makes them better off. Consumer Surplus measures how much better off they are. If a consumer is willing to pay up to $10 for a unit of a product (as reflected by his/her emand curve) but the market price is $8 demand curve) but the market price is $8, then the Consumer Surplus is $2 from that nit consumption unit consumption. 3
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Consumer Surplus Since the demand curve reflects willingness to pay for each extra unit, total consumer surplus is the area under the emand curve and above the price up to the demand curve and above the price up to the level of consumption. xample ssume a student wants to buy Example : Assume a student wants to buy concert tickets. emand curve tells us the student’s Demand curve tells us the student s willingness to pay for each concert ticket. 4
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Consumer Surplus - Example 1 st ticket worth $20 but price is $14 so student generates $6 worth of surplus. We can measure this for each ticket. The value of the 7 th ticket is $14 and so the consumer is indifferent between uying or not buying this 7 cket The
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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Topic08_ConsumerProducer Surplus - Topic 08 08 Consumer and...

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