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Eco 10-3-07 - Econ notes 1 Applications of Consumer Surplus...

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Econ notes 10/3/07 1. Applications of Consumer Surplus a. Rent control i. See Rent control Graph ii. P* = original price iii. P1= government set price iv. Q*= original quantity of apartments v. Q1= demanded amount of apartments 2. Previewing Supply w/ production a. Implies Upward Sloping Supply curves i. See “preview” ii. Sellers are now responsive to price iii. By virtue of Rent Control, people are gaining an increased consumer surplus 3. COST a. Historical Cost the price you paid for something i. Meaningless for an accountant ii. Irrelevant to what you do right now b. Opportunity Cost i. The value of the highest forsaken alternative 1. In other words, cost depends on the alternative you face ii. Actions imply there is a forgone alternative and therefore cost iii. If no action is taken, there can be not cost iv. If there is no alternative, there is not a cost c. Time Is Money i. Time is not a cost 1. But what we do with it is costly d. EX. “This loaf of bread ‘costs’ 1.35”
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Eco 10-3-07 - Econ notes 1 Applications of Consumer Surplus...

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