ECO100Y1 Lecture Notes - Lecture 5: Siriusxmu, Economic Surplus, Demand Curve
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Principle of diminishing marginal utility + rational behaviour: Insight: no rational individual would consume a good at a point where its marginal utility is negative [so case is not very interesting]. But: when one decides (cid:862)it"s a bargain(cid:863) or (cid:862)it"s too much(cid:863), one is subconsciously using the. If consumption of good x is unchanged: consumer re-optimizes, by decreasing consumption of x, and thus increasing the marginal utility of x, until. The difference between the maximum price a buyer would pay for a good and the price the buyer actually pays. Consumer surplus equals area under demand curve and above price (up to the equilibrium. Quantity). (cid:862)steplike(cid:863) demand curves are used to illustrate calculation of consumer surplus. See: text, chapter 7, figures 7. 1 and 7. 2. Example: market for blue fox fur coat (cid:862)willingness to pay(cid:863): . Note: if market existed, and you could buy coat for , your consumer surplus would be (-).
