What Does the Demand Curve

Tell Us About Consumer

Welfare?
 Ronny’s Demand Curve for
Pink Lady Apples

PPink

Kilos of Pink Lady

apples demanded
OK, the demand curve predicts
how Ronny responds to the price
of Pink Lady apples! This is a
positive prediction!
But can the demand curve tell us
something about Ronny’s welfare?
That would be a normative
prediction!
Demand Curves, Another Way to
Look at Them…

PPink

1 kg
Kilos of Pink Lady
apples demanded
Demand Curves, Another Way to
Look at Them…

PPink

1 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

PPink

This is how
much Ronny
is willing to
pay for one
kilo of Pink
Lady apples.

1 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

PPink

This is how
much Ronny
is willing to
pay for the
second kilo
of Pink Lady
apples.

1 kg 2 kg
Kilos of Pink Lady
apples demanded
Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo

PPink
of Pink Lady apples is 5.

Can we measure how happy

Ronny is with this situation?

Kilos of Pink Lady

apples demanded
Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo

PPink
of Pink Lady apples is 5.

Can we measure how happy

Ronny is with this situation?

4 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo of

This is how
Pink Lady apples is 5.
much Ronny PPink
was willing
to pay for the Can we measure how happy
first kilo. Ronny is with this situation?

1st kg 4 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

This is how
Suppose that the price of a kilo of
much Ronny PPink
Pink Lady apples is 5.
was willing to
pay for the first Can we measure how happy
kilo.
Ronny is with this situation?

This is how
much Ronny
actually pays 1st kg 4 kg
for the first Kilos of Pink Lady
kilo. apples demanded
 Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo of

PPink
Pink Lady apples is 5.

Can we measure how happy

Ronny is with this situation?
Ronny’s
benefit from 5
consuming
the first kilo
and having
paid 5.

1st kg 4 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo of

PPink
Pink Lady apples is 5.

Can we measure how happy

Ronny is with this situation?
Ronny’s
benefit 5
from
consuming
the second
kilo and
having
paid 5. 2nd kg 4 kg
Kilos of Pink Lady
apples demanded
 Demand Curves, Another Way to
Look at Them…

Suppose that the price of a kilo of

PPink
Pink Lady apples is 5.

Can we measure how happy

Ronny is with this situation?

Ronny’s
consumer
surplus from
consuming four
kilos of Pink 4 kg
Kilos of Pink Lady
Lady apples at apples demanded
the price of 5.
What about the demand curve for Pink Lady
apples in the UK?

Does it look like Ronny’s demand?

Does it share the same properties?

 From Individual Demand to
Market Demand
Ronny’s demand

PPink

1 kg
Kilos of Pink Lady
apples demanded
 From Individual Demand to
Market Demand

Market demand for Pink Lady apples

Ronny’s Debra’s
Neeve’s
demand demand
demand

+ + + …=
Consumer Surplus in the Market Demand

Total consumer surplus at price 5

5
Consumer Surplus in the Market Demand

Total consumer surplus at price 5

Beware: This is now the

sum of many consumers’
surpluses; it does not take
into account distributional
aspects!
5
Consumer Surplus in the Market Demand

If you use only total consumer surplus to

measure consumer well-being, you are blind to
how well-being is distributed.
Beware: Consumer
surplus does not
take into account
distributional
aspects!

=
Consumer Surplus in the Market Demand

If you use only total consumer surplus to

measure consumer well-being, you are blind to
how well-being is distributed.
Beware: Consumer
surplus does not
take into account
distributional
aspects!

=
What Does the Demand Curve Tell Us About Consumer
Welfare?

The End