Producer Surplus and Total Surplus

Producer Surplus and Total Surplus - Cost is the value of...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 1 Cost and the Supply Curve name cost Jack $10 Janet 20 Chrissy 35 A seller will produce and sell the good/service only if the price exceeds his or her cost. Hence, cost is a measure of willingness to sell. Cost is the value of everything a seller must give up to produce a good ( i.e. , opportunity cost). Includes cost of all resources used to produce good, including value of the seller’s time. Example: Costs of 3 sellers in the lawn-cutting business.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 2 Cost and the Supply Curve 3 2 20 – 34 1 10 – 19 0 $0 – 9 Q s P Derive the supply schedule from the cost data: name cost Jack $10 Janet 20 Chrissy 35
Background image of page 2
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 3 Cost and the Supply Curve $0 $10 $20 $30 $40 0 1 2 3 P Q P Q s $0 – 9 0 10 – 19 1 20 – 34 2 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 4 $0 $10 $20 $30 $40 0 1 2 3 Cost and the Supply Curve P Q At each Q , the height of the S curve is the cost of the marginal seller , the seller who would leave the market if the price were any lower. Chrissy’s cost Janet’s cost Jack’s cost
Background image of page 4
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS 5 $0 $10 $20 $30 $40 0 1 2 3 Producer Surplus P Q Producer surplus (PS): the amount a seller is paid for a good minus the seller’s cost PS = P – cost
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 $0 $10 $20 $30 $40 0 1 2 3 Producer Surplus and the S Curve P Q PS = P – cost Suppose P = $25. Jack’s PS = $15 Janet’s PS = $5 Chrissy’s PS = $0 Total PS = $20 Janet’s cost Jack’s cost Total PS equals the area above the supply curve under the price, from 0 to Q . Total PS equals the
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 22

Producer Surplus and Total Surplus - Cost is the value of...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online