Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Contents • Consumer Surplus • Producer Surplus • Social Surplus/Net Welfare Lecture Revision of Microeconomics Hồ Văn Dũng Consumer Surplus • Welfare economics – How the allocation of resources affects economic well-being Consumer Surplus • Willingness to pay – Maximum amount that a buyer will pay for a good • Consumer surplus – Amount a buyer is willing to pay for a good – Minus amount the buyer actually pays for it Hồ Văn Dũng Table Consumer Surplus Four possible buyers’ willingness to pay Buyer Tý Sửu Dần Mão • Using the demand curve to measure consumer surplus Willingness to pay $100 80 70 50 – Consumer surplus • Closely related to the demand curve – Demand schedule • Derived from the willingness to pay of the possible buyers – At any quantity • Price given by the demand curve – Willingness to pay of the marginal buyer Hồ Văn Dũng Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Table Figure The demand schedule Price More than $100 $80 to $100 $70 to $80 $50 to $70 $50 or less The demand curve Buyers None Tý Tý, Sửu Tý, Sửu, Dần Tý, Sửu, Dần, Mão Price of Albums Quantity Demanded Tý’s willingness to pay $100 Sửu’s willingness to pay 80 70 Dần’s willingness to pay Mão’s willingness to pay 50 Demand The table shows the demand schedule for the buyers in Table Consumer Surplus • Using the demand curve to measure consumer surplus • Demand curve – Reflects buyers’ willingness to pay – Measure consumer surplus Quantity of Albums The graph shows the corresponding demand curve Note that the height of the demand curve reflects buyers’ willingness to pay Figure Measuring consumer surplus with the demand curve (a) Price = $80 Price of Albums (b) Price = $70 Price of Albums Tý’s consumer surplus ($20) $100 Tý ’s consumer surplus ($30) $100 80 70 80 70 50 50 • Consumer surplus in a market Sửu ’s consumer surplus ($10) Total consumer surplus ($40) Demand – Area below the demand curve and above the price Demand Quantity of Albums Quantity of Albums In panel (a), the price of the good is $80, and the consumer surplus is $20 In panel (b), the price of the good is $70, and the consumer surplus is $40 Consumer Surplus How the price affects consumer surplus (b) Consumer surplus at price P2 Price Price A A Consumer surplus Initial consumer surplus – Initial price, P1 • Quantity demanded Q1 • Given consumer surplus – New, lower price, P2 • Greater quantity demanded, Q2 10 Figure (a) Consumer surplus at price P1 • How a lower price raises consumer surplus • Buyers - always want to pay less P1 C P1 Additional consumer surplus to initial consumers C Consumer surplus to new consumers B B F P2 Demand D E Demand – New buyers • Increase in consumer surplus – From initial buyers – From new buyers 11 Hồ Văn Dũng Q1 Q2 Q1 0 Quantity Quantity In panel (a), the price is P1, the quantity demanded is Q1, and consumer surplus equals the area of the triangle ABC When the price falls from P1 to P2, as in panel (b), the quantity demanded rises from Q1 to Q2, and the consumer surplus rises to the area of the triangle ADF The increase in consumer surplus (area BCFD) occurs in part because existing consumers now pay less (area BCED) and in part because new consumers enter the 12 market at the lower price (area CEF) Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Consumer Surplus Fig 8-7: Geometry of Consumer Surplus • Consumer surplus measures the amount that consumers gain from purchases by the difference in the price that each pays from the maximum price each would be willing to pay – The maximum price each would be willing to pay is determined by a demand (willingness to buy) function – When the price increases, the quantity demanded decreases as well as the consumer surplus Consumer Surplus • What does consumer surplus measure? • Consumer surplus Producer Surplus – Benefit that buyers receive from a good • As the buyers themselves perceive it – Good measure of economic well-being – Exception: Illegal drugs • Drug addicts – Willing to pay a high price for heroin • Society’s standpoint – Drug addicts don’t get a large benefit from being able to buy heroin at a low price Hồ Văn Dũng Producer Surplus • Cost and the willingness to sell • Cost – Value of everything a seller must give up to produce a good • Producer surplus 15 16 Table The costs of four possible sellers Seller Willingness to sell Giáp Ất Bính Đinh $900 800 600 500 – Amount a seller is paid for a good – Minus the seller’s cost of providing it 17 Hồ Văn Dũng 18 Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Table Producer Surplus The supply schedule • Using the supply curve to measure producer surplus Price – Producer surplus Sellers $900 or more $800 to $900 $600 to $800 $500 to $600 Less than $500 • Closely related to the supply curve – Supply schedule • Derived from the costs of the suppliers – At any quantity Quantity Supplied Giáp, Ất, Bính, Đinh Ất, Bính, Đinh Bính, Đinh Đinh None • Price given by the supply curve – Cost of the marginal seller The table shows the supply schedule for the sellers in Table 19 20 Figure Producer Surplus The supply curve Price of House Painting $900 800 • Using the supply curve to measure producer surplus • Supply curve Supply Giáp’s cost Ất’s cost 600 500 – Reflects sellers’ costs – Measure producer surplus Bính’s cost Đinh’s cost • Producer surplus in a market – Area below the price and above the supply curve Quantity of Houses Painted The graph shows the corresponding supply curve Note that the height of the supply curve reflects sellers’ costs 21 22 Figure Producer Surplus Measuring producer surplus with the supply curve (a) Price = $600 Price of House Painting Supply Price of House Painting $900 800 $900 800 600 500 600 500 Đinh’s producer surplus ($100) (b) Price = $800 Supply Total producer surplus ($500) • How a higher price raises producer surplus • Sellers - want to receive a higher price – Initial price, P1 • Quantity supplied, Q1 • Given producer surplus Bính’s producer surplus ($200) – New, higher price, P2 • Greater quantity supplied, Q2 Đinh’s producer surplus ($300) – New producers • Increase in producer surplus Quantity of Houses Painted In panel (a), the price of the good is $600, and the producer surplus is $100 In panel (b), the price of the good is $800, and the producer surplus is $500 Hồ Văn Dũng – From initial suppliers – From new suppliers Quantity of Houses Painted 23 24 Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Figure Producer Surplus How the price affects producer surplus (b) Producer surplus at price P2 (a) Producer surplus at price P1 Price Price P2 P1 B Producer surplus A C Supply Additional producer surplus to initial producers Supply P1 D E Producer surplus to new producers B Initial consumer surplus F C A Q1 Q2 Quantity Q1 0 Quantity In panel (a), the price is P1, the quantity supplied is Q1, and producer surplus equals the area of the triangle ABC When the price rises from P1 to P2, as in panel (b), the quantity supplied rises from Q1 to Q2, and the producer surplus rises to the area of the triangle ADF The increase in producer surplus (area BCFD) occurs in part because existing producers now receive more(area BCED) and in part because new producers enter 25 the market at the higher price (area CEF) • Producer surplus measures the amount that producers gain from a sale by the difference in the price each receives from the minimum price each would be willing to sell at – The minimum price each would be willing to sell at is determined by a supply (willingness to sell) function – When price increases, the quantity supplied increases as well as the producer surplus Copyright © 2009 Pearson Add ison-Wesley All rights reserved 8-26 Fig 8-8: Geometry of Producer Surplus Social Surplus/ Total Surplus Hồ Văn Dũng Market Efficiency • The benevolent social planner Figure Consumer and producer surplus in the market equilibrium Price A – Total surplus = Consumer surplus + Producer surplus • Consumer surplus = Value to buyers – Amount paid by buyers • Producer surplus = Amount received by sellers – Cost to sellers • Amount paid by buyers = Amount received by sellers – Total surplus = Value to buyers – Cost to sellers 29 Hồ Văn Dũng 28 Supply D Equilibrium price Consumer surplus E Producer surplus B Demand C Equilibrium quantity Quantity Total surplus—the sum of consumer and producer surplus—is the area between the supply and demand curves up to the equilibrium quantity 30 Trường Đại học Công nghiệp Tp.HCM Khoa Thương mại - Du lịch 21-Dec-16 Phân tích sách Trước có sách Sau có sách Chênh lệch (Δ) Giá (P) - Sản lượng (Q) - Thặng dư tiêu dùng (CS) Thặng dư sản xuất (PS) Tiền thuế phủ thu (G) Tổng phúc lợi xã hội (SS/NW) Hồ Văn Dũng ... Consumer surplus = Value to buyers – Amount paid by buyers • Producer surplus = Amount received by sellers – Cost to sellers • Amount paid by buyers = Amount received by sellers – Total surplus... existing producers now receive more(area BCED) and in part because new producers enter 25 the market at the higher price (area CEF) • Producer surplus measures the amount that producers gain from... Area below the price and above the supply curve Quantity of Houses Painted The graph shows the corresponding supply curve Note that the height of the supply curve reflects sellers’ costs 21 22