Escolar Documentos
Profissional Documentos
Cultura Documentos
Buyer WTP
John $100
Paul $80
George $70
Ringo $50
The demand schedule
The market demand depicts the various quantities that
buyers will buy at different prices.
Price Buyers Quantity demanded
80 Paul’s WTP
70 George’s WTP
50 Ringo’s WTP
Demand
0 1 2 3 4 Quantity of
Albums
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Measuring consumer surplus
Suppose price = $80
Price of
album
$100
John’s consumer surplus ($20)
80
70
50
Demand
0 1 2 3 4 Quantity of
albums
80
Paul’s consumer
70 surplus ($10)
Total
50 consumer
surplus ($40)
Demand
0 1 2 3 4
Quantity of
albums
Consumer
surplus
P1
B C
Demand
0 Q1 Quantity
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If price falls from P1 to P2
Price
A
Initial
consumer
surplus
C Consumer surplus
P1
B to new consumers
F
P2
D E
Additional consumer Demand
surplus to initial
consumers
0 Q1 Q2 Quantity
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What does consumer surplus measure?
Valued in dollars.
Producer surplus
Producer surplus is the amount a seller is paid for a
good minus the seller’s cost.
Agnetha $900
Benny $800
Bjorn $600
Anni-Frid $500
Copyright©2004 South-Western
The supply schedule
Price Sellers Quantity supplied
Agnetha’s cost
Benny’s cost
Bjorn’s cost
Anni-Frid’s cost
Using supply to measure producer surplus
The area below the price & above the supply curve
measures the producer surplus.
Measuring producer surplus with the supply curve
Price = $600
Price of
House
Painting Supply
$900
800
600
500
Anni-Frid’s
Grandma’s producer
producer
surplus ($100)
surplus ($100)
0 1 2 3 4
Quantity of
Houses Painted
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Measuring producer surplus with the supply curve
Price = $800
Price of
House
Painting Supply
Total
producer
$900 surplus ($500)
800
’ producer
Anni-Frid’s
surplus ($300)
0 1 2 3 4
Quantity of
Houses Painted
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With a more general supply curve
Producer surplus at price P1
Price
Supply
B
P1
C
Producer
surplus
0 Q1 Quantity
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If price increases to p2
Producer surplus at price P2
Price
Additional producer Supply
surplus to initial
producers
D E
P2 F
B
P1
Initial C
Producer surplus
producer to new producers
surplus
0 Q1 Q2 Quantity
Copyright©2003 Southwestern/Thomson Learning
Market efficiency
A resource allocation is Pareto efficient if it is
impossible to make somebody better-off without
making someone else worse off.
D
Supply
Consumer
surplus
Equilibrium E
price
Producer
surplus
Demand
B
0 Equilibrium Quantity
quantity Copyright©2003 Southwestern/Thomson Learning
Market outcomes
Value Cost
to to
buyers sellers
Cost Value
to to
sellers buyers Demand
0 Equilibrium Quantity
quantity