L2. Willingness to Pay

L2. Willingness to Pay - WillingnesstoPay/Demand n

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Willingness to Pay/Demand n What are people willing to pay for a good or service q This depends on n Ability to pay n Preferences n Usual notion of diminishing willingness to pay q Decreasing marginal utility of any good q Plot of willingness to pay curve Units of the Good $
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Marginal willingness to pay as Demand n Consider the price P q Quantity associated is q q Why would the consumer not want any quantity greater than q? n Consumer surplus in a demand curve: Area a n Total amount paid out: Area b n Note the nonlinearity, a decreasing slope as quantity increases Units of the Good $ a b p q
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Demand Curves n Demand curve on the right indicates a higher willingness  to pay q Maybe the individual has a higher income q Maybe the individual appreciates the good more etc. q This could indicate a shift in demand of a single individual Units of the Good $
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Aggregating willingness to pay for  private goods n Private goods: can be consumed in separate and different amounts 
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L2. Willingness to Pay - WillingnesstoPay/Demand n

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