Chapter Consumers, Producers, and the Efficiency of Markets 7.
3 SUPPLY AND DEMAND II: MARKETS AND WELFARE. Copyright © 2006 Thomson Learning 7 Consumers,...
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3 SUPPLY AND DEMAND II: MARKETS AND WELFARE
Transcript of 3 SUPPLY AND DEMAND II: MARKETS AND WELFARE. Copyright © 2006 Thomson Learning 7 Consumers,...
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SUPPLY AND DEMAND II: MARKETS AND WELFARE
Copyright © 2006 Thomson Learning
77Consumers, Producers, and the
Efficiency of Markets
Table 1 Four Possible Buyers’ Willingness to Pay
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Copyright © 2006 Thomson Learning
The Demand Schedule and the Demand Curve
Figure 1 The Demand Schedule and the Demand Curve
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Price ofAlbum
0 Quantity ofAlbums
Demand
1 2 3 4
€100 John’s willingness to pay
80 Paul’s willingness to pay
70 George’s willingness to pay
50 Ringo’s willingness to pay
Figure 2 Measuring Consumer Surplus with the Demand Curve
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(a) Price = €80
Price ofAlbum
50
70
80
0
€100
Demand
1 2 3 4 Quantity ofAlbums
John’s consumer surplus (€20)
Figure 2 Measuring Consumer Surplus with the Demand Curve
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(b) Price = €70Price of
Album
50
70
80
0
€100
Demand
1 2 3 4
Totalconsumersurplus (€40)
Quantity ofAlbums
John’s consumer surplus (€30)
Paul’s consumersurplus (€10)
Figure 3 How the Price Affects Consumer Surplus
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Consumersurplus
Quantity
(a) Consumer Surplus at Price P
Price
0
Demand
P1
Q1
B
A
C
Figure 3 How the Price Affects Consumer Surplus
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Initialconsumer
surplus
Quantity
(b) Consumer Surplus at Price P
Price
0
Demand
A
BC
D EF
P1
Q1
P2
Q2
Consumer surplusto new consumers
Additional consumersurplus to initial consumers
Table 2 The Costs of Four Possible Sellers
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The Supply Schedule and the Supply Curve
Figure 4 The Supply Schedule and the Supply Curve
Figure 5 Measuring Producer Surplus with the Supply Curve
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Quantity ofHouses Painted
Price ofHouse
Painting
500
800
€900
0
600
1 2 3 4
(a) Price = €600
Supply
’Nana’s producersurplus (€100)
Figure 5 Measuring Producer Surplus with the Supply Curve
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Quantity ofHouses Painted
Price ofHouse
Painting
500
800
€900
0
600
1 2 3 4
(b) Price = €800
Georgia’s producersurplus (€200)
Totalproducersurplus (€500)
’Nana’s producersurplus (€300)
Supply
Figure 6 How the Price Affects Producer Surplus
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Producersurplus
Quantity
(a) Producer Surplus at Price P
Price
0
Supply
B
A
C
Q1
P1
Figure 6 How the Price Affects Producer Surplus
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Quantity
(b) Producer Surplus at Price P
Price
0
P1B
C
Supply
A
Initialproducersurplus
Q1
P2
Q2
Producer surplusto new producers
Additional producersurplus to initialproducers
D EF
Figure 7 Consumer and Producer Surplus in the Market Equilibrium
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Producersurplus
Consumersurplus
Price
0 Quantity
Equilibriumprice
Equilibriumquantity
Supply
Demand
A
C
B
D
E
Figure 8 The Efficiency of the Equilibrium Quantity
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Quantity
Price
0
Supply
Demand
Costto
sellers
Costto
sellers
Valueto
buyers
Valueto
buyers
Value to buyers is greaterthan cost to sellers.
Value to buyers is lessthan cost to sellers.
Equilibriumquantity
