Providing an in-depth summary of welfare in the market, including examples, definitions, graphs and great summaries. An essential to understanding welfare in the market for consumers, producers, and for firms with and without power.
Wellfare
* In a market ->
any additional utility a consumer or producer mightget over and above their reservation
buying or selling price
wellfare for the consumer
buyers Willing
*
to pay varying prices for a particular good
Why
* do buyers have differentWips for the same good? < thelr relative Income levels
> their preferences
↑ these goods give Individuals differing levels of Satisfaction
as the
*
price ↓ In the market, the number of goods demanded I
demand
* curve < shows demanded
a by Individuals In a marketat various ppoints
< downward-sloping when "Law or Demand" is being obeyed
·
snows demanded
a t When Pr
Demand curve
I snows all prices consumers are Wip:. shows utility derived from this product
B 100= -
2Q
·
actually pay
consumers dont
> 20th Customer IS Wip R60 . . Item
MUSt
EHCI WTP:
give them Utility /SGEISSACTION
R60 Worth of
doesnt, they would spend their money
If It usually there Is I price In
somewhere else the Market
I customer buying 35th Item Is only willing to
do
so because the Item gives them R30 UtIItY1
SALISGACtIOR
*
now Is the price consumers pay determined? - Firm with power: price determined by the firm
< firm power:price determined
without by Marketforces
always
* I price all consumers
pay when buying the product
If
* market price IS R30:>35 Sales Will likely Occur
>final customer In the market
IS WTP R30 for the good because Itgives them R30 worth of satisfaction
person wanting
*
to buy 36th good I would not choose this product
> their WTP:p 100
= -
2(36)
=
R28
. .sale does nothappen as they would have gotten R28 Worth of satisfaction ata costof R30
c onsumers
* buying first 34 goods 1stc ustomers utility:p 100
= -
2(1) =
R98
customer's utility:p 100 2(2) R96
=
< 2nd
-
=
I all consumers before 35th consumer value the productmore than the price they pay for It:WTP P
economic
* rent> the difference between whatthe consumers would have pald and now much they actually pay
>consumer surplus
> WTP -
P These examples assumed:
- the Items sold could only be
natural numbers
> non-zero Integers
⑭this
assumption:
> add the differences between
up all Ghatt he quantities are natural
whatthese consumers would have numbers)
pald and the amount
they actually
pald A = > can define the area between
the demand curve and the
equilibrium price to the
consumer
surplus consumer surplus
consumer surplus would
be:
I(100 30). 35
= -
R1225
=
consumer
* the difference between
surplus: the demand curve and the equilibrium price
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