Microeconomics Chapter 4

Microeconomics Chapter 4 - Microeconomics Chapter 4: 1....

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Microeconomics Chapter 4: 1. Consumer Surplus and the Demand Curve: a. Willingness to pay and the demand curve: - Willingness to pay is the maximum price at which the consumer is willing to buy a good - The demand curve is a step shaped with alternating horizontal and vertical segments Each step on the curve represents one consumer and its height indicates that consumer’s willingness to pay, the max price. b. Willingness to pay and consumer surplus - Net gain is the willingness to pay minus actual price He net gain a buyer achieves is called the individual consumer surplus The sum of the individual consumer surpluses is the total consumer surplus in the market - Consumer surplus: Equal to the area below the demand curve but above the price. This is the total net gain to consumers generated from buying and consuming The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price. With a lot of potential buyers the demand curve becomes smooth
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