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Transcript
Consumer and Producer Surplus Lesson 7 Sections 49, 50, 51 Consumer Surplus and the Demand Curve • Willingness to Pay – The demand curve is based on the individual choices of the people that make it up, and each individual is willing to pay a different price. – While Consumer A might be willing to pay $500 for a new television, Consumer B might only pay $300. – If the Television costs $250, both will buy the television, but each will have a different level of benefit, called surplus. B would have a surplus of $50, while A would have a surplus of $250. Figure 49.1 The Demand Curve for Used Textbooks Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 49.2 Consumer Surplus in the Used-Textbook Market Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 49.3 Consumer Surplus Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 49.6 The Supply Curve for Used Textbooks Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 49.7 Producer Surplus in the Used-Textbook Market Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 49.8 Producer Surplus Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Consumer Surplus, Producer Surplus and Efficiency • The Gains from Trade – Both the buyer and the seller expect to gain from a trade, otherwise the trade would not happen. – The gains from trade are the consumer and producer surplus added together. • The Efficiency of Markets – The idea of the efficiency of markets is that no other combination of price and quantity will produce more consumer or producer surplus. – In other words, the market is efficient if there is no way to make someone better off without making someone else worse off. Equity and Efficiency • Efficiency is not the only goal however, as society is also concerned with equity, or fairness. – Progressive Tax – Regressive Tax – Flat Tax The Effects of Taxes on Total Surplus • The Effect of an Excise Tax on Quantity and Price Price Elasticities and Tax Incidence The Benefits and Costs of Taxation • Revenue from an Excise Tax – The revenue of the tax is the value of the tax times the quantity • Costs of Taxation – Deadweight Loss • Transactions that do not take place – Administrative Costs • Additional costs of having the tax – Opportunity Costs • Home improvements not made because of increasing tax burden Utility as Satisfaction • Utility and Consumption – Utility is an imaginary measure of satisfaction. • Principle of Diminishing Marginal Utility – Marginal Utility • What is the satisfaction of consuming the next item? – Marginal Utility Curve Figure 51.1 Cassie’s Total Utility and Marginal Utility Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Budgets and Optimal Consumption • Budget Constraints and Budget Lines – Budget Constraint – Consumption Possibilities – Budget Line • The Optimal Consumption Bundle Figure 51.3 Optimal Consumption Bundle Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers