Chapter_4_Notes.docx

Chapter_4_Notes.docx - Chapter 4 Notes: Economic...

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Chapter 4 Notes: Economic Efficiency, Government Price Setting, and Taxes. Surplus Consumer Surplus —Measures the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. o Willing to pay $80 for Macroeconomics textbook, but find it online for $40 => a consumer surplus of $40. The demand curve can be used to measure the total consumer surplus in a market. o Demand curves show the willingness of consumers to purchase a product at different prices. Marginal Benefit — The additional benefit to a consumer from consuming one more unit of a good or service. Consumers are willing to purchase a product up to the point where the marginal benefit of consuming a product is equal to its price. o The total amount of consumer surplus in a market is equal to the area below the demand curve and above the market price. This area represents the benefit to consumers in excess of the price they paid for a product. Producer Surplus — The difference between the lowest price a firm would have been willing to accept and the price it actually receives. o Willing to sell a macroeconomics textbook for $20, but receive $40 => a producer surplus of $20. Supply
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Chapter_4_Notes.docx - Chapter 4 Notes: Economic...

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