Chapter Six: Welfare Analysis

Consumer Surplus

Figure 6.1: Demand Curve for Cups of Coffee This figure shows the same demand curve for coffee we presented in Chapter 3.

Figure 6.2: Detailed Demand Curve for Coffee By “zooming in” on the demand curve we can associate marginal price changes with marginal changes in the quantity demanded.

Figure 6.3: Consumer Surplus and a Demand Curve Consumer surplus is the difference between price and someone’s maximum willingness to pay (i.e., the demand curve).

Figure 6.4: Market Consumer Surplus Market consumer surplus is the area below the demand curve but above the price.

Producer Surplus

Figure 6.5: Supply Curve for Cups of Coffee This figure shows the same supply curve for coffee we presented in Chapter 3.

Figure 6.6: Detailed Supply Curve for Coffee By zooming in on the supply curve we can associate marginal price changes with marginal changes in the quantity supplied.

Figure 6.7: Producer Surplus and a Supply Curve Producer surplus is the difference between price and the production cost (i.e., the supply curve).

Figure 6.8: Market Producer Surplus Market producer surplus is the area above the supply curve but below the price.

Social Efficiency

Figure 6.9: Social Welfare at market Equilibrium Net welfare benefits are the sum of consumer and producer surplus.

Figure 6.10: A Price Ceiling A price ceiling sets a maximum allowable price, which creates a deadweight loss.

Figure 6.11: A Price Floor A price floor sets a minimum allowable price, which creates a deadweight loss.