CONSUMER SURPLUS AND THE DEMAND CURVE

CONSUMER SURPLUS AND THE DEMAND CURVE - the sum of the...

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CONSUMER SURPLUS AND THE DEMAND CURVE Buyers  The demand curve is derived from their tastes and preferences—and  those same preferences also determine how much they gain  from the  opportunity to buy the product  Willingness to Pay and the Demand Curve A consumer’s  willingness to pay  for a good is the maximum price at which he or  she would buy that good Demand schedule    for small number of consumers, demand  curve is step- shaped, with alternating horizontal and vertical segments  Each horizontal segment—each step—corresponds to one potential buyer’s  willingness to pay Willingness to Pay and Consumer Surplus Individual consumer surplus - the net gain to an individual buyer from the  purchase of a good. It is equal to the difference between the buyer’s willingness  to pay and the price paid.  Total consumer surplus
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Unformatted text preview: - the sum of the individual consumer surpluses of all the buyers of a good in a market Consumer surplus- refers to both individual and total consumer surplus Total consumer surplus is equal to the area below the demand curve but above the price The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price How Changing Prices Affect Consumer Surplus When the price of a good falls, the area under the demand curve but above the price—which we have seen is equal to consumer surplus—increases The total gain in consumer surplus is the sum of the shaded areas, the increase in the area under the demand curve but above the price When price of a good rises, there is a fall in consumer surplus...
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This note was uploaded on 03/16/2012 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at University of Wisconsin.

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