ECON101 Lecture Notes - Lecture 7: Masala Chai, Economic Surplus, Lemonade

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Chapter 4 economic efficiency, government price setting, and taxes. 4. 3 government intervention in the market: price floors and price ceilings. Consumers buy goods and producers sell goods as it makes them better off (at least as good off) Consumer surplus (cs) difference between the highest price a consumer is willing to pay (wtp) for a good/service and the actual price the consumer pays: money saved or profit to consumer. Producer surplus (ps) difference between the lowest price a firm would be willing to accept (wta) for a good/service and the price it actually receives: profit (revenue cost) Figure 4. 1 deriving the demand curve for chai. Example: four people are interested in buying one cup of chai each. Each consumer has a different value for a cup of chai: maybe theresa just has a higher income and is willing to pay more than the other customers. It depe(cid:374)ds o(cid:374) the (cid:272)o(cid:374)su(cid:373)ers" marginal benefit.

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