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Lecture 4 CS PS Market efficiency-HA
Lecture 4 CS PS Market efficiency-HA
Lecture 4 CS PS Market efficiency-HA
OBJECTIVES
Consumer surplus
Producer surplus
Market efficiency & equilibrium
Consumers, Producers, and the Efficiency of Markets
Welfare economics
Consumer Surplus
Willingness to pay:
the maximum amount
that a buyer will pay for
a good WTP
measures how much the
buyer values the good
Consumers, Producers, and the Efficiency of Markets
Consumer Surplus
Demand Schedule:
Derived from the willingness Demand Schedule
to pay of the possible buyers
Table 1. WTP
Consumers, Producers, and the Efficiency of Markets
Demand
0 1 2 3 4 Quantity of Albums
Consumers, Producers, and the Efficiency of Markets
Demand
0 1 2 3 4 Quantity of
Albums
Copyright©2003 Southwestern/Thom
Consumers, Producers, and the Efficiency of Markets
50
Demand
0 1 2 3 4 Quantity of
Albums
Consumers, Producers, and the Efficiency of Markets
80 80
Paul’s consumer
70 surplus (€10)
70
P Total
50
CS 50 consumer
surplus (€40)
Demand
0 1 2 3 4 Quantity of 0 1 2 3 4 Quantity of
Albums Albums
Consumer Surplus (cont.)
Price
Measuring Consumer
A
F
P2
D E
Additional consumer Demand
surplus to initial
consumers
0 Q1 Q2 Quantity
Copyright©2003 Southwestern/Thomson Learning
Consumers, Producers, and the Efficiency of Markets
OBJECTIVES
Consumer surplus
Producer surplus
Market efficiency & equilibrium
Consumers, Producers, and the Efficiency of Markets
Producer Surplus
curve
600
500
Nana’s producer
’
surplus (€100)
0 1 2 3 4
Quantity of
Houses Painted
Consumers, Producers, and the Efficiency of Markets
600
PS 600 Georgia’s producer
500 500 surplus (€200)
Nana’s producer
’
surplus (€100)
’
Nana’s producer
surplus (€100 + €200)
Quantity of 0 1 2 3 4 Quantity of
0 1 2 3 4 Houses Painted Houses Painted
Consumers, Producers, and the Efficiency of Markets
Curve: P2
D E
F
0 Q1 Q2 Quantity
Consumers, Producers, and the Efficiency of Markets
OBJECTIVES
Consumer surplus
Producer surplus
Market efficiency & equilibrium
Consumers, Producers, and the Efficiency of Markets
Producer
surplus
TS = CS + PS
TS = WTP – Cost to seller B
Demand
0 QE Quantity
Consumers, Producers, and the Efficiency of Markets
equilibrium: maximizes
the sum of consumer and Value
to
Cost
to
Cost Value
to to
sellers buyers Demand
0 Equilibrium Quantity
quantity
SUMMARY
Consumer surplus
Producer surplus
Market efficiency & equilibrium