Chapter 6

Consumer Surplus

McGraw-Hill/Irwin

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Main Topic Measuring changes in consumer welfare using demand curves 6-2 .

Consumer Surplus  Consumer surplus is the net benefit a consume receives from participating in the market for some good  Consumer’s demand curve measures the gross benefit of consuming a good  Consumer surplus is area below the demand curve and above a horizontal line at the price 6-3 .

6: Consumer Surplus 6-4 .Figure 6.

Using Consumer Surplus to Measure Changes in Welfare  Some public policies alter prices and amounts of traded goods  Consumer surplus is useful. allows us to measure change in net economic benefit from the policy  Example:  Policy reduces consumer surplus from $100 to $80  Must provide her with $20 to compensate fully for the policy’s effects 6-5 .

consumer surplus is grey and brown shaded areas  When price = $4.7: Change in Consumer Surplus  When price = $2. consumer surplus is grey area  Brown area is change in consumer surplus 6-6 .Figure 6.

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