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Unformatted text preview: Comm 295 8.4-8.6 Surplus and Efficiency of Competition 8.4 CONSUMER SURPLUS Consumer surplus : a measure of how much more a consumer value a good than it costs him to buy it MEASURING CONSUMER SURPLUS USING A DEMAND CURVE Marginal Willingness to Pay Marginal willingness to pay : the maximum amount a consumer will spend for an extra unit - Marginal value consumer places on the last unit of output Defining Consumer Surplus Consumer surplus : monetary difference between what consumers are WILLING to pay and what they ACTUALLY PAY- Dollar value measure of extra economic benefit the consumer receives from the transaction over and above the goods price- Area under demand curve and above market price up to quantity consumer buys o Same for individuals and market EFFECT OF A PRICE CHANGE ON CONSUMER SURPLUS- If supply curve shifts up or govt imposes a sales tax, equilibrium price rises , REDUCING consumers surplus 8.5 PRODUCER SURPLUS Producer surplus : a suppliers gain from participating in the market; difference between amount for which a firm sells and minimum amount necessary for producers to be willing to produce the good...
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- Winter '09