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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This note was uploaded on 10/09/2011 for the course ECO 2023 taught by Professor Underwood-caputo during the Spring '08 term at University of Central Florida.