Demand curve must reflect the consumers full willingness to pay Supply curve must reflect all the...
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Transcript of Demand curve must reflect the consumers full willingness to pay Supply curve must reflect all the...
Demand curve must reflect the consumers full willingness to pay
Supply curve must reflect all the costs of production
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 1
Difference between what a consumer is willing to pay for a good and what the consumer actually pays
Extra benefit from paying less than the maximum price
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 2
(1)Person
(2)Maximum
Price Willing to
Pay
(3)Actual Price
(Equilibrium Price)
(4)Consumer Surplus
Bob $13 $8 $5 (=$13-$8)
Barb 12 8 4 (=$12-$8)
Bill 11 8 3 (=$11-$8)
Bart 10 8 2 (=$10-$8)
Brent 9 8 1 (= $9-$8)
Betty 8 8 0 (= $8-$8)
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 3
D
Q1
P1
Consumer Surplus
Equilibrium Price
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 4
Difference between the actual price a producer receives and the minimum price they would accept
Extra benefit from receiving a higher price
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 5
(1)Person
(2)Minimum Acceptabl
e Price
(3)Actual Price
(Equilibrium Price)
(4)Producer Surplus
Carlos $3 $8 $5 (=$8-$3)
Courtney 4 8 4 (=$8-$4)
Chuck 5 8 3 (=$8-$5)
Cindy 6 8 2 (=$8-$6)
Craig 7 8 1 (=$8-$7)
Chad 8 8 0 (=$8-$8)
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 6
S
Q1
P1
Equilibrium price
Producer surplus
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 7
S
Q1
P1
D
Consumer surplus
Producer surplus
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 8
Quantity (bags)
Pri
ce (
per
bag
)
c
S
Q1Q2
D
bd
a
e
Efficiency lossfrom underproduction
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 9
c
S
Q1 Q3
D
bf
a
g
Quantity (bags)
Pri
ce (
per
bag
)
Efficiency lossfrom overproduction
© 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 10