01:220:102 Chapter Notes - Chapter 4: Externality, Efficient-Market Hypothesis, Economic Surplus

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: Douglas Blair

Document Summary

A consumer"s willingness to pay for a good is the maximum price at which he or she would buy that good. Instead, this demand curve is step-shaped, with alternating horizontal and vertical segments. Each horizontal segment each step corresponds to one potential buyer"s willingness to pay. Individual consumer surplus is the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer"s willingness to pay and the price paid. Total consumer surplus is the sum of the individual consumer surpluses of all the buyers of a good in a market. The term consumer surplus is often used to refer both to individual and to total consumer surplus. The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price.