Alright. So now let's extend the discussion to the full demand curve here, right. Now you see on the graph, the demand curve that we're used to; it's not that jagged one anymore. This is that downward demand, the double d's. We've got our price axis and our quantity axis. So, how did we get to this kind of full demand curve, right? In this situation, there are more people in the market, right? Before, we only had 4 buyers, but now you could imagine Cartman was going to buy for 8, Kyle for 6, and now there are going to be other people. Someone who might be able to be willing to pay $6.25, someone willing to pay $6.50, someone willing to pay $7.30. All these different willingness to pay kind of smooth out the line just because there are way more customers now, and now there's the opportunity, we're going to make it, you know, you could buy more than one now too, right. Maybe you would buy the first unit for $6 and another unit for $4, right? You could be at multiple places along this line, but, regardless, the idea here is that we've got our smooth demand curve now, right? So our consumer surplus to calculate it, let's say we're at this price here of p. Our consumer surplus is going to be that area just like it says the area below the demand curve and above market price. Right. So here's below the demand curve and above the market price. Right. We're going to get this triangle. Right. And that's why we have our triangle formula, right there in the box as well. Right? Half base times height. That's how we would calculate this consumer surplus is by taking that area. So we could say that this could be like the base right here right? The base between this point and the market price, and we would have to be given this point, right, if we were going to calculate it. We don't know what it is. It would have to be given to us or something, and then we've got our height right here right. This is going to be the height of the triangle and what does that represent? Well, the height is just the quantity demanded right there at that price. That's what we see kind of happening here is that that length there is just the quantity demanded. So there you go. If you have those numbers, you'd be able to calculate a Consumer Surplus there. So now let's talk about the idea of what's going to happen to this Consumer Surplus after a price decrease. So first let's think logically like what do you think? Do you think Consumer Surplus is going to increase or decrease after the price goes down? So if the price goes down, think about it, we're going to have more surplus, right, because people are getting better deals, right? There are the people who were already buying before are going to be getting better deals because the price went down, and now that there's a lower price, new people are going to be getting in the market who are also going to be getting some consumer surplus. Right. So this price decreased just like we saw above. As the price went down and down and down, Cartman's surplus kept rising, the new people's surplus started coming in right, so let's go ahead and see what happens to the surplus here. Let me pop out of the way here. Alright so we're still going to have that same original surplus right? Well first let me mark here we got our price axis, our quantity axis, and now we're at this I'm going to call it PL like low price right? A lower price and let's go ahead and talk about the consumer surplus. So this purple, that's our original surplus, right? The surplus that already existed at the higher price. There was already some surplus at that higher price, we still get that surplus. Well, those consumers that were buying before still get the surplus and then those consumers also get more surplus just like we saw Cartman and surplus increasing as the price dropped. That's going to be represented by this box. So the people who are already in the market are now getting more surplus, because the price went down. They're getting an even better deal. They get more surplus. Alright. So that's represented by that green box is the additional surplus to the people who were already buying, and then this blue box is going to represent new surplus to new customers, right, people who were not in the market before but now that the price decreased, they are in the market. Right, so that's going to be our additional surplus is going to be that green and the blue is the extra surplus we just got because of the price decrease, but you can see that the total surplus still makes this triangle, right? We've got, you know, the triangle that includes all of the areas is still our total consumer surplus. All of this area, that is our total consumer surplus so we could still calculate with the half bh, right, if we had the numbers we needed, we could calculate the area there, but they could also ask us for, you know, these other areas if they wanted to. They could say hey what was the original surplus in this situation? And we would know to calculate the area of the purple. They could say what is the additional surplus to consumers that were already in the market. Right. People who are already buying, what additional surplus did they get? We would know it's this green box here right. The green area, that whole green area, and I'm drawing the boxes smaller just so you can see, but it does include the whole area there. And then they can also ask us what is the new surplus to new consumers at the new price, right. So we would have to calculate this little area down here, right, and they would have to give us the numbers right. We would have to have numbers for prices at the different points and different quantities right, so we would have to have a bunch of information, but we could calculate those areas. Right. So that's about how it is, with consumer surplus on the full scale here. We're going to be calculating areas of triangles like that, so just know it's going to be that area below the demand curve and above the market price. Alright, Let's go ahead and move on to some examples and practice problems.
Table of contents
- 0. Basic Principles of Economics1h 5m
- Introduction to Economics3m
- People Are Rational2m
- People Respond to Incentives1m
- Scarcity and Choice2m
- Marginal Analysis9m
- Allocative Efficiency, Productive Efficiency, and Equality7m
- Positive and Normative Analysis7m
- Microeconomics vs. Macroeconomics2m
- Factors of Production5m
- Circular Flow Diagram5m
- Graphing Review10m
- Percentage and Decimal Review4m
- Fractions Review2m
- 1. Reading and Understanding Graphs59m
- 2. Introductory Economic Models1h 10m
- 3. The Market Forces of Supply and Demand2h 26m
- Competitive Markets10m
- The Demand Curve13m
- Shifts in the Demand Curve24m
- Movement Along a Demand Curve5m
- The Supply Curve9m
- Shifts in the Supply Curve22m
- Movement Along a Supply Curve3m
- Market Equilibrium8m
- Using the Supply and Demand Curves to Find Equilibrium3m
- Effects of Surplus3m
- Effects of Shortage2m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 16m
- Percentage Change and Price Elasticity of Demand10m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
- Consumer Surplus and Willingness to Pay38m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Areas54m
- 6. Introduction to Taxes and Subsidies1h 46m
- 7. Externalities1h 12m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. The Costs of Production2h 35m
- 11. Perfect Competition2h 23m
- Introduction to the Four Market Models2m
- Characteristics of Perfect Competition6m
- Revenue in Perfect Competition14m
- Perfect Competition Profit on the Graph20m
- Short Run Shutdown Decision33m
- Long Run Entry and Exit Decision18m
- Individual Supply Curve in the Short Run and Long Run6m
- Market Supply Curve in the Short Run and Long Run9m
- Long Run Equilibrium12m
- Perfect Competition and Efficiency15m
- Four Market Model Summary: Perfect Competition5m
- 12. Monopoly2h 13m
- Characteristics of Monopoly21m
- Monopoly Revenue12m
- Monopoly Profit on the Graph16m
- Monopoly Efficiency and Deadweight Loss20m
- Price Discrimination22m
- Antitrust Laws and Government Regulation of Monopolies11m
- Mergers and the Herfindahl-Hirschman Index (HHI)17m
- Four Firm Concentration Ratio6m
- Four Market Model Summary: Monopoly4m
- 13. Monopolistic Competition1h 9m
- 14. Oligopoly1h 26m
- 15. Markets for the Factors of Production1h 33m
- The Production Function and Marginal Revenue Product16m
- Demand for Labor in Perfect Competition7m
- Shifts in Labor Demand13m
- Supply of Labor in Perfect Competition7m
- Shifts in Labor Supply5m
- Differences in Wages6m
- Discrimination6m
- Other Factors of Production: Land and Capital5m
- Unions6m
- Monopsony11m
- Bilateral Monopoly5m
- 16. Income Inequality and Poverty35m
- 17. Asymmetric Information, Voting, and Public Choice39m
- 18. Consumer Choice and Behavioral Economics1h 16m
5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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