Class 6s

# Class 6s - Department of Economics LeBow College of...

This preview shows pages 1–5. Sign up to view the full content.

Department of Economics Fall 2009 LeBow College of Business Microeconomics 301 Drexel University Professor Stehr Class 6 Outline 1. Market Demand 2. Consumer and Producer Surplus 3. Network Effects Market Demand : Identical individuals Suppose we have five individuals with identical demand given by the equation P = 100 – 2q i Find the equation for market demand and graph both individual and market demand. The new demand curve has the same Y-axis intercept but a slope that is 5 times flatter. Compare the elasticity of individual demand with that of market demand at a price of 50. Market demand is no more elastic! 1

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

View Full Document
Market Demand : Heterogeneous individuals Now suppose that we have two types of individuals with different demand equations, students and professionals. Q stud = 120 – P if P <= 120, Q stud = 0 if P > 120 Q prof = 120 – 0.5P if P <= 240, Q prof = 0 if P > 240 Add the equations to get the total demand but recall that students do not buy any tickets if the price rises above 120. Graph the three demand functions. 2
Consumer and Producer Surplus We need a way to measure the benefits that consumers derive from markets Consumer surplus— Demand curve is a maximum marginal willingness to pay curve because it tells us the maximum consumers are willing to pay for each additional unit produced. The chart below summarized a consumer’s demand for smoothies. If P = 5, what is his CS? smoothies mwtp price CS 1st 15 5 2nd 11 5 3rd 8 5 4th 6 5 5th 5 5 3

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

View Full Document
Consumer (and producer) surplus can be calculated for individuals or for the market as a whole. Suppose the chart below describes the maximum amount that various buyers are willing to pay for a used copy of a chemistry textbook. Textbooks mwtp Price CS 1st 30 20 2nd 26 20 3rd 23 20 4th 21 20 5th 20 20 Producer surplus-- Marginal cost—the additional cost of producing one more unit of a good Consumer and producer surpluses can be calculated for individuals or for the market as a whole. The chart below describes the minimum amount that various sellers are willing to accept for used copies of their chemistry textbook. Find the producer surplus if the price is \$20.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern