In Figure 1, price per movies is 12, Joy watches 8 movies in total in a month.

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Presentation transcript:

In Figure 1, price per movies is 12, Joy watches 8 movies in total in a month.

How to read the graph According to the demand curve, Joy is willing to pay at most 19 for the first movie because her benefit from watching the first movie is 19. This is equal to the area of the highest green bar in the graph. - Likewise, Joy is willing to pay at most 18 for the second movie because her benefit from watching the second movie is 18. This is equal to the area of the second highest green bar in the graph. The area of the n-th green bar is equal to the benefit Joy gets from watching the n-th movie.

Thus, we can sum up the benefits from watching these 8 movies to get the total benefits: 19+18+17+16+15+14+13+12=124 This is equal to the area of all the green bars

In Figure 2, the gold bars show the monetary cost Joy pays for each additional movie

Figure 2

How to read the graph For the first movie, Joy pays 12 to buy the ticket. This is equal to the area of the first gold bar. For the second movie, Joy pays 12 to buy the ticket. This is equal to the area of the second gold bar. For all of the 8 movies watched, the ticket price is 12 per movie. So the total money Joy pays for them is 12*8=96. This is equal to the area of the all the gold bar areas.

Total benefits-Total cost=buyer’s surplus In the graph, the green bar area subtracting the gold bar area, is the buyer’s surplus. It is equal to the top triangle area. Buyer’s surplus=124-96=28.