ECON 1B03 Lecture Notes - Lecture 5: Demand Curve, Excludability, Externality
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ECON 1B03 Full Course Notes
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Benefits received by consumers and firms: by participating in the market (buying and selling) The maximum amount a buyer will pay for a good: reflects the value buyers place on a good, this is the buyers. Consumer surplus = (base x height: the area under the demand curve, above the selling price. The benefit a seller receives: when p is less than willingness-to-pay, cs = value to buyers (demand) - amount buyers pay (price) Market price : willingness-to-pay . Gets a benefit of : a(cid:373)ou(cid:374)t of (cid:373)o(cid:374)e(cid:455) the(cid:455) did(cid:374)"t ha(cid:448)e to pa(cid:455, because p is lower than willingness-to-pay. Consumer surplus x (450 x 50) = ,250. Cbfg additional benefit for initial customers. Consumer surplus increases: x (600 x 70) = ,000. The lowest price a supplier will offer a good for sale: reflects a p(cid:396)odu(cid:272)e(cid:396)"s costs, this is the sellers reservation price. Producer surplus = (base x height: the area above the supply curve, below the selling price.