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Slides for video chapter 7 consumers producers and efficiency
1. PRINCIPLES OF MACROECONOMICS
Text: Principles of Macroeconomics, N. Gregory Mankiw, Sixth Edition.
Instructor: Sue Guzek, Kansas State University Salina
Music: We Gonna Make You… By Troy “Trombone Shorty” Andrews and Orleans
Avenue – Orleans and Claiborne
1
CONSUMERS,
PRODUCERS, AND
EFFICIENCY OF
MARKETS
2. CUSTOMER SURPLUS AND WILLINGNESS TO PAY
2
Willingness to pay is the maximum amount
a buyer is willing to pay for a good
3. HOW MUCH ARE YOU WILLING TO PAY FOR…
3
Consumer Surplus is the amount a buyer is
willing to pay for a good MINUS the
amount the buyer actually pays
6. CONSUMER SURPLUS AND THE DEMAND CURVE
Willingness to Pay=
height of the Demand
Curve
Surplus = space between
the curve and the price 6
As Price falls, Qd rises
Consumer Surplus rises
because of: lower price and
new buyers
7. WHAT DOES CONSUMER SURPLUS MEASURE?
7
The benefit buyers
receive from a
good….
AS THEY
PERCEIVE IT
8. COST AND WILLINGNESS TO SELL
Cost is the value of everything a seller must
give up to produce a good
8
9. PRODUCER SURPLUS
The amount a seller is paid for a good
MINUS the Seller’s cost of providing it
9
10. MEASURING SELLER SURPLUS
Producer Surplus
= Price – Cost to
Produce 10
When price rises, Qs rises
and Producer Surplus
rises, because of increased
price and new producers
11. MARKET EFFICIENCY
Efficiency: Maximizing total surplus received
by all members of society
11
Total Surplus = Value to Buyers – Cost to
Sellers
13. EVALUATING MARKET EQUILIBRIUM
FREE MARKETS:
Allocate goods to buyers
who value them most, as
measured by willingness to
pay
Allocate demand to sellers
who produce at lowest cost
Produce the quantity of
goods to maximize the sum
of consumer and producer
surplus
13
14. HOW MUCH WOULD YOU PAY???
14
See pages 148 and 149 n the text book
