ECON 1000 Chapter Notes - Chapter 5.2-3: Economic Surplus, Demand Curve, Marginal Utility
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ECON 1000 Full Course Notes
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Value of one more unit of a good/service is its marginal benefit. Measure marginal benefit by maximum price that is willingly paid for another unit of good: but willingness to pay determines demand, demand curve is marginal benefit curve. Figure 5. 1 (a) (b: individual demand and market demand. Individual demand = relationship between price and quantity demanded by one person. Market demand = relationship between price and quantity demanded by all buyers. Horizontal sum of the individual demand curve. Figure 5. 1 (c : consumer surplus. Consumer surplus = excess of benefit received from a good over the amount paid for it. Area of the triangle is her consumer surplus. The rectangle under the triangle shows how much she actually pays: supply and marginal cost. Markets must sell their outputs for a price that exceeds their production cost: supply, cost, and minimum supply-price. Cost = what firms give up to produce g/s. Price = firm receives when it sells g/s cost.