ECON 102 Lecture Notes - Lecture 9: Economic Surplus, Deadweight Loss

• School: PSU
• Department: Economics
• Course: ECON 102
• Professor: Paul Kagundu

Document Summary

The difference between the max price a consumer is willing to pay and what they actually pay. What they actually end up paying is the market (equilibrium) price. If go(cid:448). i(cid:373)poses regulatio(cid:374)s o(cid:374) thi(cid:374)gs like redu(cid:272)i(cid:374)g pollutio(cid:374), it"ll put pri(cid:272)es up a(cid:374)d (cid:272)ut i(cid:374)to consumer surplus. So it"s used i(cid:374) (cid:272)ost-benefit analyses to see how much people are willing to cut into their surplus in order to have a greener environment. Exa(cid:373)ple: (cid:455)ou"re (cid:449)illi(cid:374)g to pa(cid:455) 5 for a skate(cid:271)oard that (cid:272)osts o(cid:374)l(cid:455) 0 surplus is . Market demand is collective willingness to pay. (cid:449)hi(cid:272)h (cid:455)ou (cid:449)o(cid:374)"t (cid:271)e(cid:272)ause (cid:455)ou"ll e(cid:374)d up pa(cid:455)i(cid:374)g (cid:373)ore for it than you value it at quantity. Finding out the surplus from the graph: (bh) [area of a triangle] For this graph: (2000*40) = 40,000 (total saved by the all consumers: the total value is the rectangle under the surplus triangle (cid:894)it"s what people actually paid, the consumer surplus is the net gain.