For Personal Use Only. Not For Circulation. © Charles R. Hulten 2010
ECON 306
CLASS HANDOUT
CONSUMER SURPLUS
•
WILLINGNESS TO PAY
•
CONSUMER SURPLUS
•
MAXIMUM CONSUMER SURPLUS
•
PRODUCER SURPLUS
•
APPLICATION:
TAXES AND
ELASTICITIES
•
APPLICATION:
THE IPOD PROBLEM
AGAIN
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For Personal Use Only. Not For Circulation. © Charles R. Hulten 2010
ALTERNATIVE DOLLAR METRIC OF UTILITY:
WILLINGNESS TO PAY
Price
Quantity
6
6
5
0
1
5
4
3
2
4
3
2
1
a
b
c
d
e
f
Willingness-to-Pay
unit 1 = a = 5.5
unit 2 = b = 4.5
unit 3 = c = 3.5
unit 4 = d = 2.5
unit 5 = e = 1.5
unit 6 = f
= 0.5
Total =
?
Price
Quantity
Demand Curve
P = 6 - Q
6
6
5
0
1