Introduction to Microeconomics
Introduction to Microeconomics - Midterm Exam 2 Spring Semester - 2014
Chapter 7: Consumers, Producers, and the Efficiency of Markets
1. Consumer Surplus
a. Willingness to Pay
i. A buyer’s maximum price they are willing to pay ii. measures how much that buyer values the good iii. Consumer Surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
1. consumer surplus measure the benefit buyers receive from participating in a market
b. Using The Demand Curve To Measure Consumer Surplus
i. Consumer Surplus is closely related to the demand curve for a product ii. For all demand curves: the area below the demand curve and above the price measures the consumer surplus in a market.
c. How A Lower Price Raises Consumer Surplus
i. Because buyers always want to pay less for the goods they buy, a lower price makes the buyers of a good better off.
1. The concept of consumer surplus is used to answer how much buyers’ well-being raises in response to a lower price. ii. As price lowers, the area above the price and below the demand curve increase. Thus consumer surplus increases.
d. What Does Consumer Surplus Measure?
i. Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it.
1. Thus consumer surplus is a good measure of economic well-being if policymakers want to respect the preference of buyers
2. In some cases, policymakers may choose not to care about consumer surplus because they do not respect the preferences that drive the buyer behavior.
a. Ex: drug addicts - willingness of drug addicts to pay is not a good measure of the buyers’ benefit, and consumer surplus is not a good measure of economic well-being
b. In most markets, however, consumer surplus does reflect economic well-being because economists assume that rational people are making decisions in their best interests
2.
Chapter 7: Consumers, Producers, and the Efficiency of Markets
1. Consumer Surplus
a. Willingness to Pay
i. A buyer’s maximum price they are willing to pay ii. measures how much that buyer values the good iii. Consumer Surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
1. consumer surplus measure the benefit buyers receive from participating in a market
b. Using The Demand Curve To Measure Consumer Surplus
i. Consumer Surplus is closely related to the demand curve for a product ii. For all demand curves: the area below the demand curve and above the price measures the consumer surplus in a market.
c. How A Lower Price Raises Consumer Surplus
i. Because buyers always want to pay less for the goods they buy, a lower price makes the buyers of a good better off.
1. The concept of consumer surplus is used to answer how much buyers’ well-being raises in response to a lower price. ii. As price lowers, the area above the price and below the demand curve increase. Thus consumer surplus increases.
d. What Does Consumer Surplus Measure?
i. Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it.
1. Thus consumer surplus is a good measure of economic well-being if policymakers want to respect the preference of buyers
2. In some cases, policymakers may choose not to care about consumer surplus because they do not respect the preferences that drive the buyer behavior.
a. Ex: drug addicts - willingness of drug addicts to pay is not a good measure of the buyers’ benefit, and consumer surplus is not a good measure of economic well-being
b. In most markets, however, consumer surplus does reflect economic well-being because economists assume that rational people are making decisions in their best interests
2.