1 / 18

Consumer and Producer Surplus

Module. Micro: Econ:. 13. 49. Consumer and Producer Surplus. KRUGMAN'S MICROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. The meaning of consumer surplus and its relationship to the demand curve.

crompton
Download Presentation

Consumer and Producer Surplus

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Module Micro: Econ: 13 49 Consumer and Producer Surplus • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • The meaning of consumer surplus and its relationship to the demand curve. • The meaning of producer surplus and its relationship to the supply curve.

  3. Consumer Surplus Consumer surplus measures the difference between what a consumer is willing to pay for a good and what he/she actually has to pay.

  4. Willingness to Pay • Willingness to pay and the demand curve • Willingness to pay and consumer surplus

  5. Calculating Consumer Surplus

  6. Calculating Consumer Surplus 1) After doing some market research, Robbie found out that the most sales of laundry service happen around 5$, and that the companies are happy to sell 5 units at that price. If the most any customer is willing to pay is around 10$, what is the consumer surplus? 2) During preparation for the SAT the year 3 students tend to stay in and study, so their clothes don’t get so dirty. 4 loads were done at the normal price. During this week the highest price a student is willing to pay is around 9$. What is the change in consumer surplus from question 1?

  7. Practice If the price is $10, then what is consumer surplus? What is consumer surplus at a price of $8? Price FIGURE 1. $30 $10 $8 100 120 Quantity

  8. Producer Surplus Producer surplus measures the difference between the price producers receive for a good and the cost of producing the good.

  9. Cost and Producer Surplus • Cost and the supply curve: For each unit of output, producer surplus is the difference between price and the cost of producing that unit. • Cost and producer surplus: The total producer surplus would then be seen as the area above the supply curve (cost) and below the price.

  10. Calculating Producer Surplus

  11. Changes in Price affect Consumer and Producer Surplus • If price decreases, • Consumer surplus increases (willingness to pay is the same, but the price paid is lower) • Producer surplus deceases (costs are the same, but the price received is lower) • If price increases, • Consumer surplus decreases (willingness to pay is the same, but the price paid is higher) • Producer surplus increases (costs are the same, but the price received is higher)

  12. Total Surplus = Consumer Surplus + Producer Surplus

  13. Practice • Draw a graph representing producer surplus. • Draw a graph representing consumer surplus. • Draw a graph representing market surplus.

  14. Practice What does consumer surplus measure? How is it calculated? If Bob is willing to pay up to $100 for a ticket to a concert, but actually pays $60, then what is his consumer surplus?

  15. Practice Serena’s company faces the following total cost schedule. Q Total Cost (TC) 0 0 5 $1 7 $3 10 $7 12 $10 17 $15 a. Using the information from the table, derive the supply curve. b. If the price of the good was $7, how units would be produced? What would producer surplus be at this quantity? Show producer surplus on your graph.

  16. R Reading and Homework Read: 496-499 Homework: Tackle the Test p. 493-494

More Related