ECO 1104 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve
30 Oct 2018
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The Consumers’ Demand and Consumer Surplus
Horizontal line: the going price
The significance of trapezoid: overall consumer welfare
Total consumer welfare is measured by consumer surplus
Green triangle is consumer surplus
- The significance of measure of consumer well being
As the level of consumption rises, the level of consumer surplus diminishes
- Consumer surplus at the margin (the very last unit produced) is 0
- Practical applications
- Often in the context of a public works project. In order to justify the expenditure
for light-rail transit, should some estimate of the implicit value of consumers in
addition to merely the number of riders or the amount collected in faves
- As the consumption rises, the level of consumer surplus diminishes
- Consumer surplus at the margin (the very last unit produced) is 0
- Practical applications
- Often in the context of public works projects. In order to justify the expenditure for
light rail transit, should have some estimate of the implicit value of consumers, in
addition, to merely the number of riders or the amount collected in fares
- The willingness to pay
- As the decrease in price will raise consumer surplus and this make consumers better of
- An increase in price will have the opposite effect
Producer Surplus
- Producer surplus is the counterpart for consumer surplus on the supply side
- It is a measure of producer welfare
- The benefit that firms receive from producing the market
- Just as consumer surplus is related to the demand curve, producer surplus is derived
from the supply curve
- This implies that it has something to do with production costs
- Think of the price variable on the supply curve as the willingness to supply a given
quantity
- Producer surplus = the actual price received - the willingness to produce (and sell)
- The area below the price yet above the supply curve measures the producer surplus in
the market
- It is the measure of producer welfare and it is 0 for the last unit produced and sold and
positive for all of the previously produced and sole units
- As the increase in price received raises the level of producer surplus, while a decrease
lowers it
- On the left most consumer surplus
Market Efficiency
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ECO 1104 Full Course Notes
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Document Summary
Total consumer welfare is measured by consumer surplus. The significance of measure of consumer well being. As the level of consumption rises, the level of consumer surplus diminishes. Often in the context of a public works project. In order to justify the expenditure for light-rail transit, should some estimate of the implicit value of consumers in addition to merely the number of riders or the amount collected in faves. As the consumption rises, the level of consumer surplus diminishes. Consumer surplus at the margin (the very last unit produced) is 0. Often in the context of public works projects. In order to justify the expenditure for light rail transit, should have some estimate of the implicit value of consumers, in addition, to merely the number of riders or the amount collected in fares. As the decrease in price will raise consumer surplus and this make consumers better of. An increase in price will have the opposite effect.
