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1、12008 Thomson South-Western, all rights reservedN. GRE GORY MANK IWPremium PowerPointSlides by Ron Cronovich 2007 update7P R I N C I P L E S O FF O U R T H E D I T I O NMICROECONOMICSConsumers, Producers, and the Consumers, Producers, and the Efficiency of MarketsEfficiency of MarketsCHAPTER 7CONSUM
2、ERS, PRODUCERS, EFFICIENCY OF MARKETS1In this chapter, look for the answers to these questions: What is consumer surplus? How is it related to the demand curve? What is producer surplus? How is it related to the supply curve? Do markets produce a desirable allocation of resources? Or could the marke
3、t outcome be improved upon? CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS2Welfare EconomicsRecall, the allocation of resources refers to: how much of each good is produced which producers produce it which consumers consume it Welfare economicsFirst, we look at the well-being of consumers. 2CH
4、APTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS3Willingness to Pay (WTP)A buyers willingness to pay for a goodWTP measures300Flea125John175Chad$250AnthonyWTPnameExample: 4 buyers WTP for an iPodCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS5WTP and the Demand CurveDerive the demand schedule
5、:0 125126 175176 250251 300$301 & upQdwho buysP (price of iPod)300Flea125John175Chad$250AnthonyWTPnameCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS6$0$50$100$150$200$250$300$35001234WTP and the Demand CurveQdPPQ3CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS7$0$50$100$150$200$250$300$35
6、001234About the Staircase ShapeThis D curve looks like a staircase with 4 steps one per buyer. PQIf there were a huge # of buyers, as in a competitive market,there would be a huge # of very tiny steps,and it would look more like a smooth curve.CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS8$0$
7、50$100$150$200$250$300$35001234WTP and the Demand CurveAt any Q, the height of the D curve is the WTP of the marginal buyer, the buyer who would leave the market if P were any higher.PQFleas WTPAnthonys WTPChads WTP Johns WTPCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS9Consumer Surplus (CS)C
8、onsumer surplus300Flea125John175Chad$250AnthonyWTPnameSuppose P = $260. Fleas CS =4CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS10$0$50$100$150$200$250$300$35001234CS and the Demand Curve PQFleas WTPP = $260 Fleas CS = Total CS = $40CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS11$0$50$
9、100$150$200$250$300$35001234CS and the Demand Curve PQFleas WTPAnthonys WTPInstead, suppose P = $220 Fleas CS = Anthonys CS =Total CS =CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS12$0$50$100$150$200$250$300$35001234CS and the Demand Curve PQThe lesson:5CHAPTER 7CONSUMERS, PRODUCERS, EFFICIEN
10、CY OF MARKETS1301020304050600510 15 20 25 30PQ$CS with Lots of Buyers & a Smooth D CurveThe demand for shoesDAt Q = 5(thousand), the marginal buyer is willing to pay $_ for pair of shoes. Suppose P = $30. Then his consumer surplus = $_ CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS140102030405
11、0600510 15 20 25 30PQCS with Lots of Buyers & a Smooth D CurveThe demand for shoesDRecall: area of a triangle equals x base x height$CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS1501020304050600510 15 20 25 30PQHow a Higher Price Reduces CSDIf P rises to $40, CS = Two reasons for the fall in
12、CS.6A A C C T T I I V V E LE L E E A A R R NN I I NN G G 1 1: : Consumer surplusConsumer surplus16051015202530354045500510152025P $Qdemand curveA.Find marginal buyers WTP at Q = 10. B.Find CS for P = $30. Suppose P falls to $20. How much will CS increase due toC.buyers entering the market D.existing
13、 buyers paying lower priceCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS18Cost and the Supply Curve35Kitty20Hunter$10AngelocostnameA seller will only produce and sell the good ifCostExample: Costs of 3 sellers in the lawn-cutting business.CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS19C
14、ost and the Supply Curve35 & up20 3410 19$0 9QsP Derive the supply schedule from the cost data:35Kitty20Hunter$10Angelocostname7CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS20Cost and the Supply Curve$0$10$20$30$400123PQ35 & up20 3410 19$0 9QsPCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARK
15、ETS21$0$10$20$30$400123Cost and the Supply CurvePQKittys costHunters costAngelos costCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS22$0$10$20$30$400123Producer SurplusPQProducer surplus (PS):8CHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS23$0$10$20$30$400123Producer Surplus and the S Cur
16、vePQSuppose P = $25.Angelos PS =Hunters PS =Kittys PS =Total PS =Kittys costHunters costAngelos costTotal PS equalsCHAPTER 7CONSUMERS, PRODUCERS, EFFICIENCY OF MARKETS2401020304050600510 15 20 25 30PQPS with Lots of Sellers & a Smooth S CurveThe supply of shoesSSuppose P = $40. At Q = 15(thousand), the marginal sellers cost is $_and her produc
