1.

Analytical Tools (a review of micro principles)

DYNAMIC =>
TB Static
TC TC(Both)
TB Purchase where indifference curve is
Income/ Income/ Income/
P 60
60 PS
P2
CS 1 oQ(e)
2D1Producer
D2Variable
300
D S tangent
DProduce
Q to budgetwhere Inverse Demand 300
P(e) P(e)
P1 Q(e1) Q(e)
PX1Q2 Q(e) Not Costs
produced. (Dead 60 constraint.
Atatweight
P1 Supply
lossisat Q(e1) =Curve:
o PX2
58 P(e)
P(e) =P(e)
30
59 Q1
Q(e) D
D PX3
S
Demand
S D = D1 + -
D2 Q1; WTA>WTP Q(d(x)) 300 –Costs
5P
Surplus
S1 (MD>0) difference
WTP Total
= is greatest.
WTA:
Total
WTP P(x)Includes
PS
(1/2)(60)(300)
= = includes
60 – the variable
Fixed
0.20Q
(1/2)(60-30)(150)
= 9000 + costs+ of
Profit
(30)(150)all=firms
6750
greater
-willing
at Q2; than Demand
WTA<WTP *Ordinary Demand Curve
Q(e)
o = 150 300
*This to
PSis(Surplus).
+the *This produce
dollar
Costsisvalue
=the Q(e). MC
p Q1
Q0 cs Q0
MC(priv.)
MC(soc.)
S =D
psSum
= MBof MC(priv.)
Q1MC(soc.)
S2 (MG>0)
MC(priv.)
CS
D =+ MB(private)
Opp. At P2total
Totalreceived
WTP5WTP @ 150 units 7
o by the consumers
Supply of this
is less thangood.
Welfare =
Variable costs of production CS +
(opp. PS
costs)
 Demand- (Shortage).
Total WTP = 6750
o - Total Expenditure = 30 X 150 = 4500
- Consumer Surplus = 6750-4500 = 2250
*Consumer surplus is the total utility received
above and beyond what consumers were willing
to pay.