Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121 Calculate the equilibrium price and the quantity supplied/demanded at that price.

Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121 The concept of consumer’s surplus was introduced by Alfred Marshall: "A consumer is generally willing to pay more for a given quantity of good than what he actually pays at the price prevailing in the market". For example, you go to the market for the purchase of a pen. You are mentally prepared to pay $25 for the pen which the seller has shown to you. He offers the pen for $10 only. You immediately purchase the pen and say ‘thank you’. You were willing to pay $25 for the pen but you are delighted to get it for $10 only. Consumer’s surplus is the difference between the maximum amount a consumer is willing to pay for the good and the price he actually pays for the good. In our example given above, the consumer’s surplus is $15 ($25 – $10).

Monday, April 2, 2012MAT 121 Producer Surplus: An economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market. For example, say a producer is willing to sell 500 widgets at $5 a piece and consumers are willing to purchase these widgets for $8 per widget. If the producer sells all of the widgets to consumers for $8, it will receive $4,000. To calculate the producer surplus, you subtract the amount the producer received by the amount it was willing to accept, (in this case $2,500), and you find a producer surplus of $1,500 ($4,000 - $2,500).

Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121

Monday, April 2, 2012MAT 121