MSU EC 201 - Chap4 (24 pages)

Previewing pages 1, 2, 23, 24 of 24 page document View the full content.
View Full Document

Chap4



Previewing pages 1, 2, 23, 24 of actual document.

View the full content.
View Full Document
View Full Document

Chap4

13 views


Pages:
24
School:
Michigan State University
Course:
Ec 201 - Introduction to Microeconomics
Introduction to Microeconomics Documents

Unformatted text preview:

Krugman and Wells Chapter 4 Steven J Haider EC201 Spring 2015 Overview Chap 2 the US and Brazil could benefit from trade They each specialized in producing the good in which they had a comparative advantage Both gained from trade even though the US had an absolute advantage in producing both goods Chap 3 we learned how competitive markets work Participating in the market is trading you use money perhaps earned from your job to buy trade for other goods This chapter Measure the benefits from the existence of markets a type of trade Consumer Producer and Total Surplus Markets are efficient Caution we re now using our supply demand model which will only make sense if you know how the model works Do problems p2 Willingness to Pay and Demand Willingness to pay maximum price a person is willing to pay for a good Example willingness to pay for a used textbook Assume individuals are willing to buy only one Assume individuals buy when price willingness to pay by convention and then derive a market demand curve We did this for the muffin market already Note step function because there are only five consumers p3 Calculating consumer surplus If the price were 30 only Aleisha Brad and Claudia would buy Individual consumer surplus WtP P for each individual Market consumer surplus sum of individual CS p4 Graphical representation of CS CS the area between the demand curve and the price Fig 4 2 graphical representation of textbook example Fig 4 3 graphical representation of CS more generally Note you will need to know how to calculate the area of triangles and squares See Chap 2 appendix for refresher p5 Changes in CS textbook example Suppose price drops from 30 to 20 How does CS change We could do this with a table New CS 39 25 15 5 84 Change in CS 84 49 35 NOTE there are gains to original buyers and new buyer s 20 39 20 25 20 15 20 5 p6 Changes in CS textbook example Suppose price drops from 30 to 20 How does CS change But we ll generally work with the graph Change 30 20 x 3 25 20



View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view Chap4 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Chap4 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?