|
|
Chapter 20 Consumer Behavior Review of Demand may be usefulI. Law of diminishing marginal utility 1 video II. Utility maximizing rule 6 videos III. Consumer's surplus 4 videos 2 videos |
Return to Economics Internet Library Chapter 21 How the Cost of Production Affects Supply Please link to and share! 8/12/24 |
Lecture Notes 1-page printable lecture notes
I. Law of diminishing marginal utility
Unit 1 Review
Consuming more within a given period will result |
Supplemental Political Economy Stuff
Other Micro Chapters
21) How Cost of Production Affects Supply
22) Analyzing Profit |
Number Purchased | Total Utility | Marginal Utility | ||
0 | 0 | 0 | ||
1 | 4 | 4 | ||
2 | 7 | 3 | ||
3 | 8 | 1 | ||
4
|
8 | 0 | ||
5
|
7 | -1 |
|
|
X costs $3 | Y costs $2 | Z costs $1 | |||||||||
Quantity | MUQ | MU/$ | Buy | Quantity | MUQ | MU/$ | Buy | Quantity | MUQ | MU/$ | Buy |
1 | 12 | 4.0 | 1st | 1 | 6 | 3.0 | 3rd | 1 | 3 | 3.0 | 3rd |
2 | 10 | 3.3 | 2nd | 2 | 4 | 2.0 | 4th | 2 | 2 | 2.0 | 4th |
3 | 6 | 2.0 | 4th | 3 | 1 | 0.5 | 3 | 1 | 1.0 | ||
4 | 0 | 0.0 | 4 | 0 | 0.0 | 4 | 0 | 0.0 |
C. Videos
III. Consumer's surplus
Unit 3 Review
Amount consumers are willing
and |
Unit 2 Review
When spending a limited amount of money, consumers equate
|
More on Economic surplus from Wikipedia, the free encyclopedia. The term surplus is used in
economics for several situations. The consumer surplus
(sometimes named consumer's surplus or consumers' surplus) is
the amount that consumers benefit by being able to purchase a
product for a price that is less than they would be willing to
pay. The producer surplus is the amount that producers
benefit by selling at a market price mechanism that is higher
than they would be willing to sell for. |
|
||
OverviewOn a standard supply and demand (S&D) diagram, consumer surplus (CS) is the triangular area above the price level and below the demand curve, since intramarginal consumers are paying less for the item than the maximum that they would pay. In contrary, producer surplus (PS) is the triangular area below the price level and above the supply curve, since that is the minimum quantity a producer can produce. If the government intervenes by implementing, for example, a tax or a subsidy, then the graph of supply and demand becomes more complicated and will also include an area that represents government surplus. Combined, the consumer surplus, the producer surplus, and the government surplus (if present) make up the social surplus or the total surplus. Total surplus is the primary measure used in welfare economics to evaluate the efficiency of a proposed policy. A basic technique of bargaining for both parties is to pretend that their surplus is less than it really is: sellers may argue that the price they ask hardly leaves them any profit, while customers may play down how eager they are to have the article. In national accounts, operating surplus is roughly equal to distributed and undistributed pre-tax profit income, net of depreciation. In some schools of heterodox economics, the economic surplus denotes the total income which the ruling class derives from its ownership of scarce factors of production, which is either reinvested or spent on consumption. In Marxian economics, the term surplus may also refer to surplus value, surplus product and surplus labor. Consumer surplusThe individual consumer surplus is the difference between the
maximum total price a consumer would be willing to pay (or
reservation price) for the amount he buys and
the actual total
price.
If someone is willing to pay more than the actual price, their
benefit in a transaction is how much they saved when they didn't pay
that price. For example, a person is willing to pay a tremendous
amount for water since he needs it to survive, however since there
are competing suppliers of water he is able to The maximum price a consumer would be willing to pay for a given
amount is the sum of the maximum price he would be willing to pay
for the first unit, the maximum One bargaining tactic is to pretend a lower consumer surplus. The aggregate consumers' surplus is the sum of the consumer's surplus for each individual consumer. This can be represented on the figure of the aggregate demand curve. 1. Friedman, David D
2. Further Reading Henry George, Progress and Poverty [1]
|
Calculation from supply and demandThe consumer surplus (individual or aggregated) is the area under the (individual or aggregated) demand curve and above a horizontal line at the actual price (in the aggregated case: the equilibrium price). If the demand curve is a straight line, the consumer surplus is the area of a triangle: Where Pmkt is the equilibrium price (where supply equals demand), Qmkt is the total quantity purchased at the equilibrium price and Pmax is the price at which the quantity purchased would fall to 0 (that is, where the demand curve intercepts the price axis). For more general demand and supply functions, these areas are not triangles but can still be found using integral calculus. Consumer surplus is thus the definite integral of the demand function with respect to price, minus the definite integral of the constant function D(P)=Qmkt (i.e. PmktQmkt), from the market price to the maximum reservation price (i.e. the price-intercept of the demand function): The graph shows, that if we see a rise in the equilibrium price and a fall in the equilibrium quantity, then consumer surplus falls. Distribution of benefits when price fallsWhen supply of a good expands, the price falls (assuming the
demand curve is downward sloping) and consumer surplus increases.
This benefits two groups of people. Consider an example of linear supply and demand curves. For an initial supply curve S0, consumer surplus is the triangle above the line formed by price P0 to the demand line (bounded on the left by the price axis and on the top by the demand line). If supply expands from S0 to S1, the consumers' surplus expands to the triangle above P1 and below the demand line (still bounded by the price axis). The change in consumer's surplus is difference in area between the two triangles, and that is the consumer welfare associated with expansion of supply. Some people were willing to pay the , the by P1, on the left by the price axis and on the right by line extending vertically upwards from Q0. The second set of beneficiaries are consumers who buy more, and new consumers, those who will pay the new lower price (P1) but not the higher price (P0). Their additional consumption makes up the difference between Q1 and Q0. Their consumer surplus is the triangle bounded on the left by the line extending vertically upwards from Q0, on the right and top by the demand line, and on the bottom by the line extending horizontally to the right from P1. Rule of one-halfThe rule of one-half estimates the change in surplus for small changes in supply with a constant demand curve. Note that in this special case where the consumer demand curve is linear, consumer surplus is the area of a triangle. Following the figure above, where:
|
Editors note: And now back
to Quick Notess
|
|
Supplemental Political Economy Stuff Preface: Do Economists Lie? For Trump 1. Increase Economies Growth 2. Tax Cuts Success? 3. Inflation's Back, Trouble Ahead? 4. Stocks Too High? 5. Recession Coming? Long-Term 1. Will Inflation/Growth Tame Deficits 2. Will Debt End Capitalism 3. Job Loss to AI 4. Dollar Privilege Continuation 5. Disposition-Illegal Immigrants 6. Is Income Inequality Affecting Growth 7. Will Stagnate Income Continue 8. Russia/China U.S. Adversaries Related Sites 2016 Political Controversies examine poverty, middle class stagnation, politics and capitalism. Library of Economics and Liberty Ayn RandMises Institute Roubini Global Economics Top 100 Economics Blogs < VI. Normal and Superior Goods A. With Normal Goods, consumers buy more as income rises, B. With Inferior Goods, less as income rises |
|
C. Applying Consumer Surplus from Tariffs and Quotas Video ACDC
Unit 4 Review
Amount producer receives minus what they are
V. Determine Demand |
.
C. Maximizing Behavior from Cyber Economics has a more in depth analysis. Unit 5 Review Consumers buy less as income rises bread) and buy more as income rises (croissants |
VII. Branding World’s Most Valuable 2017 Brands
|
D. A Good Product Helps Among the iPhone’s Biggest Transformations: Apple Itself
f
Source: @WSJ; Read
full article
For more on Branding
|
E. Product Development Helps
|
VIII Readings
An Introduction to Behavioral Economics Inconsistency Among the ElderlyUnderstanding Urban Decline Podcasts
NPR’s Planet Money Chapter 20 Class Discussion Questions Free Stuff For Students is an extensive collection. Free Internet Libraries improve grades and careers.
|
|