CHAPTER • Individual and Market Demand 133 When deciding how many tickets to buy, our student might reason as follows: The first ticket costs $14 but is worth $20 This $20 valuation is obtained by using the demand curve to find the maximum amount that she will pay for each additional ticket ($20 being the maximum that she will pay for the first ticket) The first ticket is worth purchasing because it generates $6 of surplus value above and beyond its cost The second ticket is also worth buying because it generates a surplus of $5 ($19 - $14) The third ticket generates a surplus of $4 The fourth, however, generates a surplus of only $3, the fifth a surplus of $2, and the sixth a surplus of just $1 Our student is indifferent about purchasing the seventh ticket (which generates zero surplus) and prefers not to buy any more than that because the value of each additional ticket is less than its cost In Figure 4.14, consumer surplus is found by adding the excess values or surpluses for all units purchased In this case, then, consumer surplus equals $6 + $5 + $4 + $3 + $2 + $1 = $21 To calculate the aggregate consumer surplus in a market, we simply find the area below the market demand curve and above the price line For our rock concert example, this principle is illustrated in Figure 4.15 Now, because the number of tickets sold is measured in thousands and individuals’ demand curves differ, the market demand curve appears as a straight line Note that the actual expenditure on tickets is 6500 ϫ $14 ϭ $91,000 Consumer surplus, shown as the yellow-shaded triangle, is 1/2 * ($20 - $14) * 6500 = $19,500 This amount is the total benefit to consumers, less what they paid for the tickets Of course, market demand curves are not always straight lines Nonetheless, we can always measure consumer surplus by finding the area below the demand curve and above the price line 20 Price (dollars per 19 ticket) F IGURE 4.15 18 CONSUMER SURPLUS GENERALIZED 17 16 Consumer Surplus 15 Market Price 14 13 Actual Expenditure Rock concert tickets (thousands) Demand Curve For the market as a whole, consumer surplus is measured by the area under the demand curve and above the line representing the purchase price of the good Here, the consumer surplus is given by the yellow-shaded triangle and is equal to 1/2 ϫ ($20 Ϫ $14) ϫ 6500 ϭ $19,500