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Lecture 13

ECON 101 Lecture Notes - Lecture 13: Demand Curve, Economic Surplus, Marginal UtilityPremium

3 pages100 viewsWinter 2015

Department
Economics
Course Code
ECON 101
Professor
Marina Adshade
Lecture
13

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ECON 101 - Lecture #13 - Consumer Surplus
Introduction
Previous lectures have been focusing on what are the causes and results of economic
changes, but not whether the changes on desirable
In other words, we are moving from positive analysis toward normative
Welfare economics decide if the allocation of resources are desirable
Both buyers and sellers gain from trade
Consumer surplus
Producer surplus
Welfare economics involves the analysis of these two kinds of surpluses
Consumer Surplus
Willingness to pay (WTP)
The maximum amount a buyer is willing to pay for a good
The difference between WTP and the market is the consumer surplus
Basically, consumer surplus is a money measure of consumers’ gains from trade
Consider the following comic books market as presented by Table 1
Person Willingness to Pay ($)
Aleisha 59
Brad 45
Claudia 35
Darren 25
Edwina 15
Analysis of the table
Price above 59, quantity = 0
Price below 50 but above 45, quantity = 1 (Aleisha)
Price below 45 but above 35, quantity = 2 (Aleisha and Brad)
Price below 35 but above 25, quantity = 3 (Aleisha, Brad, and Claudia)
Price below 25 but above 15, quantity = 4 (Aleisha, Brad, Claudia, and Darren)
Price below 15, quantity = 5 (Aleisha, Brad, Claudia, Darren, and Edwina)
With that, a graph could be constructed
Figure 1. The graph of willingness to pay curve for the comic books market.
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