Ch 2 Unit3

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Ch 2 Unit3

  1. 1. Managerial Economics & Business Strategy Chapter 2 goes with unit three Demand and Supply
  2. 2. Overview <ul><li>Consumer and Producer Surplus </li></ul>
  3. 3. Consumer Surplus: <ul><li>The value consumers get from a good but do not have to pay for. </li></ul>
  4. 4. I got a great deal! <ul><li>That company offers a lot of bang for the buck! </li></ul><ul><li>Dell provides good value but questionable service </li></ul><ul><li>If total value greatly exceeds total amount paid. </li></ul><ul><li>Then consumer surplus is large. </li></ul>
  5. 5. I got a lousy deal! <ul><li>That car dealer drives a hard bargain! </li></ul><ul><li>I almost decided not to buy it! </li></ul><ul><li>They tried to squeeze the very last cent from me! </li></ul><ul><li>Total amount paid is close to total value. </li></ul><ul><li>Consumer surplus is low . </li></ul>
  6. 6. Consumer Surplus: The Discrete Case Price Quantity D 10 8 6 4 2 1 2 3 4 5 Consumer Surplus: The value received but not paid for. Consumer surplus = (8-2) + (6-2) + (4-2) = $12.
  7. 7. Consumer Surplus: The Continuous Case Price $ Quantity D 10 8 6 4 2 1 2 3 4 5 Expenditure on 4 units = $2 x 4 = $8 Value of 4 units = $24 C onsumer Surplus = $24 - $8 = $16
  8. 8. Producer Surplus <ul><li>The amount producers receive in excess of the amount necessary to induce them to produce the good. </li></ul>Price Quantity S 0 Q * P *
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