ECON 101 Lecture Notes - Lecture 8: Economic Surplus, Decision Theory, Reservation Price
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Econ 101 lecture 8 consumer behaviour con"t: consumer surplus, the concept, mux = px/py x muy, from condition for tu max. Assume: y = money, p($) = 1, mu ($) constant ii. iii. Thus, mux = px x mu($) (demand transformed to mu: utility given up = utility gained at the margin iv. Concepts needed to develop consumer surplus: ldmu, mux = px * mu($) v. Mu and the tu when comparing value ii. Attitude surveys: consumer asked to reveal total, not marginal, utilities, producer surplus = (tu producer actually receives) minus (tu producer willing to receive) = area below p and above s line iii. Economic or total surplus: total/economic surplus - consumer + producer surplus. Indifference curve analysis: decision theory or choice theory, three factors: income, prices and tastes, budget line i. ii. iii. Is all possible consumption combinations of two goods, given income y, and the price of the two goods.
