ECON 202 Lecture 7: Consumer Surplus and Producer Surplus #7

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2/7/2017
Consumer Surplus and Producer Surplus #7
Chapter 4 Econ 202
Consumer and Producer/Surplus
Surplus: something that remains above what is used or needed
o Can use surplus to buy other goods and services
Economics use the idea of surplus to refer to the benefit that people derive from engaging in market transactions
Consumer surplus: difference between the highest price a consumer is willing to pay for a good or service and the
actual price the consumer receives
Producer surplus: difference between the lowest price a firm would be willing to accept for a good or service and the
price it receives
Every market that has a price has the potential to produce a surplus
Marginal Benefit
Marginal benefit: the additional benefit to a consumer from consuming one more unit of a good or service
If the prie is lo, ay of the osuer’s eefit
If the prie is high, fe if ay of the osuer’s eefit
Consumer Surplus
Described as the area below the demand curve, above the price that consumers pay
When the price falls, the overall consumer surplus remains the area below the demand curve, above the new price
Have more surplus
If the price equals the evaluation, you will buy in the market
Consumer surplus increases as the price decreases
Total Consumer Surplus
With ay osuers, the arket dead ure looks oral: a straight lie
Calculate the area of a triangle
Producer Surplus
Producer surplus can be thought of in much the same way as consumer surplus
Producer surplus: difference between the lowest price a firm receives for a product and the actual cost of producing
it
Marginal cost the lowest price a firm would accept for a good or service, the additional cost to a firm of producing
one more unit of a good or service
A profit margin is the difference between the price and the marginal cost of the last unit sold
Average profit per unit: difference between the price and the average cost of one unit, given all units are sold
Calculate compute an area of either a triangle or rectangle depends on situation
What consumer and Producer surplus measures
Consumer surplus measures the net benefit to consumers from participating in a market rather than the total benefit
Consumer surplus in a market is equal to the total benefit received by consumers minus the total amount they must
pay to buy the good or service
Producer surplus measures the net benefit received by producers from participating in a market
Producer surplus in a market is equal to the total amount firms receive from consumers minus the cost of producing
the good or service
1.) Precisely, what does consumer surplus measure
The net benefit to consumers from participating in the market
2.) Which of the following is the definition of marginal cost?
The additional cost to a firm of producing one more unit of a good or service
3.) When market price is $2, how much is the producer surplus obtained from selling the 40th cup?
$0.20
Difference of one unit and the cost for that unit
$1.80 = cost
Marginal revenue = $2.00
$2.00-$1.80 = $0.20
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