ECON 2304 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve, Price Drop
26 Sep 2016
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Allocation of resources: how much each good is produced, which producers produce it, which consumer consume it. Welfare economics studies how the allocation of resources affects economic well-being: assess well-being of producers and consumers. Willingness to pay (wtp) max amount that the buyer will pay for that good: measures how much the buyer values the good. When there is 0 quantity (max price: ex: ipods. One for each buyer: staircase shape demand curve. Marginal buyer the buyer who would leave if the market price of a good was any higher. Consumer surplus (cs) the amount a buyer is willing to pay minus the amount the buyer actually pays: cs = wtp p. Consumer surplus equals willingness to pay minus price. Represented by the area of the graph. Under the wtp and above the market price: total consumer surplus = sum of cs of each buyer.
