ECON 105 1st Edition Lecture 13 Outline of Last Lecture I. SurplusII. Deadweight LossIII. Price Controls IV. Effect of Externalities Outline of Current Lecture I. Price Controls II. Consumer Surplus Current LectureI. Price Controls a. Price Ceilingi. A legally determined maximum price that sellers may charge 1. Examples: a. Rent controlb. Support for farmersb. Price Floori. A legally determined minimum price that sellers may receiveII. Consumer Surplus a. Definitioni. The difference between the highest price a consumer is willing to pay for a good or service and the price they actually pay b. Examplesi. You pay $75 at cashier but clerk returns $15 because shoes are on sale foronly $60 1. This is a consumer surplus because you were willing to pay $75 but instead paid $60. So the consumer surplus would be $15. ii. If Bri is willing to pay $5 for an ice cream cone, Joe is willing to pay $3, Tiffany is also willing to pay $3 and Theresa will pay $3.50 then we can These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.figure out their consumer surplus if ice cream is only $1.50 a cone by subtracting what they would pay from what they did pay:1. (5-1.50)+(3-1.50)+(3-1.50)+(3.50-1.50) = 8.50 a. Each individual equation in the parenthesis a the consumersurplus for the individual: (5-1.50) is the consumer surplus for Bri, and so onb. The total of everyone’s consumer surpluses added together (the entire equation above) is the total consumer surplus c. Total consumer surplus for the market, assuming it only consists of these four people, is $8.50 iii. In this same situation, if ice cream was at $4.00 a cone then the consumersurplus would be lower because that price is above what some people were willing to pay 1. (5-4)+0+0+0 = $1.00 a. The total consumer surplus in this hypothetical market is only $1.00 c. A higher price always reduces consumer welfare, therefore reducing consumer
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