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Marginal Benefit and Marginal Benefit and Consumer Surplus Consumer Surplus
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Demand Demand The demand curve shows The maximum price is the consumers price the the maximum marginal benefit the would pay consumer incremental value of each additional for each quantity that might be purchased. item consumed.
1 2 3 Quantity
$20
$15
$15
$35
$10
$10
$45
$20
$15
$35
$30
$5
$10
$45
$30
$15
Price =$10
Demand Demand
Quantity
The consumer The consumer surplus is the surplus is the area under the area under the demand curve and demand curve and above the market above the market price. It is what price. It is what consumers gain consumers gain from their purchases from their purchases after deducting the after deducting the cost. cost.
Demand Demand
Quantity
At a price of $10 per At a price of $10 per pair of jeans, Dwight pair of jeans, Dwight buys three pair, and buys three pair, and receives $15 worth of receives $15 worth of consumer surplus. consumer surplus. His consumer surplus His consumer surplus equals the sum of the equals the sum of the consumer surplus consumer surplus from the 1st, 2nd, from the 1st, 2nd, and 3rd pair of jeans. and 3rd pair of jeans. $10 +$5 + $0 =$15. $10 +$5 + $0 =$15.
Marginal Cost and Marginal Cost and Producer Surplus Producer Surplus
The supply curve depicts the minimum price The supply curve depicts the minimum price that the producers of a good would be willing to that the producers of a good would be willing to accept for each quantity offered. accept for each quantity offered. That minimum price is the producers marginal That minimum price is the producers marginal cost,, which is the incremental cost of producing cost which is the incremental cost of producing each additional item offered for sale. each additional item offered for sale. The producer surplus is equal to the amount by The producer surplus is equal to the amount by which total revenue exceeds the total cost. which total revenue exceeds the total cost.
Quantity
$5
$5
$7.50
$7.50
$12.50
$10
$10
$22.50
$7.50
$12.50
$15
$2.50
$10
$22.50
$30
$7.50
Quantity
Quantity
Marginal Benefit and Marginal Cost Marginal Benefit and Marginal Cost
Marginal Benefit (to consumers): The Marginal Benefit (to consumers): The value of each additional unit of the good. value of each additional unit of the good. Marginal Cost (to producers): The cost of Marginal Cost (to producers): The cost of resources used to produce each additional resources used to produce each additional unit. unit. The efficient output occurs when societys The efficient output occurs when societys marginal benefit equals marginal cost. marginal benefit equals marginal cost.
Efficient Quantity
Quantity