Econ 201 1st Edition Lecture 22Outline of Last Lecture 1.question about the exam2.surplusOutline of Current Lecture 1.Logic That Links the Perspectives2.Consumer surplus3.Producer surplusCurrent LectureLogic That Links the Perspectives• Demand: MWTP declines as Q is larger.– Buyers will buy as long as MWTP >P.– Where MWTP <P they won’t buy.– So buyers’ equilibrium is where MWTP = P.– i.e. Where P line crosses Demand ~ the horizontal perspective.• Supply: MC rises as Q is larger.– Sellers will sell as long as MC <P.– Where MC >P they won’t sell.– So sellers’ equilibrium is where MC = P.– i.e. Where P line crosses Supply ~ the horizontal perspective.• Both perspectives are correct and apply simultaneously.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.Consumer Surplus: Extra value gained through a purchase• If subjective value >P, surplus value accrues to consumer.• Marginal Consumer Surplus: MCS = MWTP – P• Total CS = sum of marginals across all units purchased– Sum of MWTPs = Total WTP = WTP across all units purchased, Q1– TWTP = area below Demand out to Q1– Sum of P’s = Total Expenditure = P x Q1• So: CS = area below Demand and above P out to Q1• Use geometry of areas to calculate.Producer Surplus: Extra value gained through a sale• If Cost <P, surplus value accrues to producer (seller).• Marginal Producer Surplus: MPS = P – MC• Total PS = sum of marginals across all units sold, Q1– Sum of P’s = Total Revenue = P x Q1– Sum of MCs = Total Cost (TC) across all units sold (If no fixed cost)– TC = area below Supply out to Q1• So: PS = area below P and above Supply out to Q1• Use geometry of areas to
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