Changes

==Consumer Surplus==

==Consumer Surplus==

“Consumer surplus” is the net benefit (in dollars) a consumer obtains from buying a good.  Thus (consumer surplus) = (total benefit) - (total cost)

“Consumer surplus” is another powerful concept that illustrates the power of the free market as it drives down the price of goods.  When we buy goods and services, most of us would pay at a higher price if we had to.  For example, our families would pay twice the cost of milk because we would still want to drink milk even if the price were higher.  We may not buy as much milk at a higher price, but we would still buy some.  We get extra value when we can buy milk at a price lower than what we would really pay if we had to.

Let’s define another term: “demand price.”  That is the most someone is willing to pay for something.  We saw this in the homework problem about the tickets and scalpers.  When you go to see a movie, there is a maximum amount you are willing to pay for a ticket.  It varies for different consumers.  It obviously depends on what the movie is.

The "consumer surplus" is the net benefit (in dollars) a consumer obtains from buying a good.  Thus (consumer surplus) = (total benefit) - (total cost).  The "consumer surplus" is never negative, because people would not purchase goods or services if their total benefit is less than their total cost.  They would be better off keeping their money and not making the purchase.

A consumer’s demand price is his marginal benefit.  The total benefit in the market is thus the sum of all the demand prices, which is the area under the demand curve.

To illustrate how powerful the concept of the "consumer surplus" is, let’s define another term: “demand price.” That is the most someone is willing to pay for something.  When you go to see a movie, there is a maximum amount you are willing to pay for a ticket.  It varies for different consumers.  It also depends on what the movie is.

The consumer surplus is the demand price (the most a consumer would pay) minus the price paid (the amount the consumer actually has to pay).  Suppose you were effusive (i.e., very enthusiastic) about a particular movie, and wanted very much to see it.  You were so excited that you were willing to pay $20 to see that movie.  But if the theater only charges you $8, then your consumer surplus is $20 - $8 = $12.

A consumer’s demand price is his marginal benefit from obtaining the good or service (not including what he had to pay for it).  You may walk out of a movie theater after seeing a movie you really liked, and conclude that it gave you $25 worth of benefit.  Your marginal benefit is thus $25 from the movie (not subtracting what you paid to see it).  The total benefit in the market is thus the sum of all the demand prices, which is the area under the demand curve.

Consumers stop buying a good when the demand price equals the price paid.  For movies, the demand price falls the longer it keeps playing in a theater.  After you’ve seen the movie once or twice, you’re not willing to pay so much to see it again.  People stop paying to see the movie, and the theater stops playing it and begins showing a new movie instead.

The consumer surplus is the demand price (the most a consumer would pay) minus the price paid (the amount the consumer actually has to pay).  Suppose you were effusive (i.e., very enthusiastic) about a particular movie, and wanted very much to see it.  You were so excited that you were willing to pay $20 to see that movie.  But if the theater charges you only $8, then your consumer surplus is $20 - $8 = $12.

Almost every time someone buys something, he benefits from the consumer surplus of that transaction because he would probably pay a little more than he did.  If you value a chocolate candy bar at $1.05 but can buy it for $1, then you acquired extra wealth of 5 cents as your consumer surplus.  You would have paid $1.05 for it, but only paid $1 and then had both the candy bar and the 5 cents.  You're richer from the transaction by an amount equal to your consumer surplus.

 

Almost every time someone buys something, he benefits from the consumer surplus of that transaction because he would probably pay a little more than he did.  If you value a chocolate candy bar at $1.05 but can buy it for $1, then you acquired extra wealth of 5 cents as your consumer surplus.  You would have paid $1.05 for it, but paid only $1 and then had both the candy bar and the 5 cents.  You became wealthier from the transaction by an amount equal to your consumer surplus. And you became fatter too!

==Charity==

==Charity==