 Demand curve must reflect the consumers full willingness to pay  Supply curve must reflect all the costs of production © 2013 McGraw-Hill Ryerson Ltd.

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Presentation transcript:

 Demand curve must reflect the consumers full willingness to pay  Supply curve must reflect all the costs of production © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 1

 Difference between what a consumer is willing to pay for a good and what the consumer actually pays  Extra benefit from paying less than the maximum price © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 2

(1) Person (2) Maximum Price Willing to Pay (3) Actual Price (Equilibrium Price) (4) Consumer Surplus Bob$13$8$5 (=$13-$8) Barb128 4 (=$12-$8) Bill118 3 (=$11-$8) Bart108 2 (=$10-$8) Brent98 1 (= $9-$8) Betty88 0 (= $8-$8) © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 3

Price (per bag) Quantity (bags) D Q1Q1 P1P1 Consumer Surplus Equilibrium Price © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 4

 Difference between the actual price a producer receives and the minimum price they would accept  Extra benefit from receiving a higher price © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 5

(1) Person (2) Minimum Acceptable Price (3) Actual Price (Equilibrium Price) (4) Producer Surplus Carlos$3$8$5 (=$8-$3) Courtney48 4 (=$8-$4) Chuck58 3 (=$8-$5) Cindy68 2 (=$8-$6) Craig78 1 (=$8-$7) Chad88 0 (=$8-$8) © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 6

Price (per bag) Quantity (bags) S Q1Q1 P1P1 Equilibrium price Producer surplus © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 7

Price (per bag) Quantity (bags) S Q1Q1 P1P1 D Consumer surplus Producer surplus © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 8

Quantity (bags) Price (per bag) c S Q1Q1 Q2Q2 D b d a e Efficiency loss from underproduction © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 9

c S Q1Q1 Q3Q3 D b f a g Quantity (bags) Price (per bag) Efficiency loss from overproduction © 2013 McGraw-Hill Ryerson Ltd. Chapter 5, LO2 10

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