ECON 200 Lecture Notes - Lecture 6: Demand Curve, Perfect Competition, Reservation Price
20 Sep 2016
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Document Summary
The maximum price that a buyer would be willing to pay for a good or service. Reservation price is another term for willingness to pay. At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer, the buyer who would leave the market first if the price were any higher. Consumer surplus is the net benefit that a consumer receives from purchasing a good or service. Consumer surplus is measured by the difference between willingness to pay and the actual price. Consumer surplus is the area below the demand curve and above price, between the quantity 0and the quantity consumers choose to buy. The minimum price that a seller is willing to accept in exchange for a good or service. The net benefit that a producer receives from the sale of a good or service. Producer surplus is measured by the difference between willingness to sell and the actual price.
