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Showing posts with label surplus. Show all posts
Showing posts with label surplus. Show all posts

8/14/18

What is consumer surplus, and how to calculate it.

07:59
What is consumer surplus, and how to calculate it.
This post was updated in August of 2018 to include more information and new examples.

Consumer surplus is when a consumer derives more benefit (in terms of monetary value) from a good or service than the price they pay to consume it.  Technically, this is the difference between your maximum willingness to pay for an item and the market price. For example, imagine you are going to an Electronics store to buy a new flat panel TV.  Before you go to the store, you decide to yourself that you are not going to pay more than $300 for a TV.  This $300 is your maximum willingness to pay for the TV.  After entering the store, you find a TV you really like for only $100!  Since you were willing to pay $300 for the TV, and you only ended up paying $100 for it, you have saved $200.  This $200 is called consumer surplus by economists, because it is the “extra” or “surplus” value you received from the good beyond the price you paid for it.

6/26/18

What is a trade war?

11:58
What is a trade war?
This post is going to go over what a trade war is and what may cause them. It will also briefly discuss why they are not a good idea in general. While most economists tend agree that free trade is good for total economic surplus (meaning on the whole, or considering everyone), there are always going to individuals that lose some surplus from trade. This post goes through an example of why domestic firms producing shirts are angry with the fact that they must compete with foreign firms, so they ask for the government to impose tariffs.

7/17/14

Calculating consumer surplus with all you can eat

11:24
Calculating consumer surplus with all you can eat
This post goes over the example problem of calculating consumer surplus from different scenarios. The scenario sets up by giving you a table depicting a demand curve and then asks you to calculate consumer surplus with different prices. Finally, an all you can eat scenario is introduced where you pay a flat fee to enter the transaction but the marginal cost of each additional unit is effectively zero. Check this past post for a review of calculating consumer surplus.

A restaurant sells hot wings. A consumers demand for hotwings can be shown as:
Number of hot wing servings and the willingness to pay for hotwings (each serving)

1 $10
2 $8
3 $6
4 $4
5 $2
6 $0

a. If the price of an additional serving of hotwings is $6, how many servings will be purchased? How much consumer surplus does will you receive?

7/10/14

Perfectly elastic supply, an example

12:28
Perfectly elastic supply, an example
This post is going to go over the economics of perfectly elastic supply and how to find equilibrium price and quantity as well as consumer surplus when we are given a perfectly elastic supply curve. First, if supply is perfectly price elastic, then it means that any change in price will cause an infinite amount of change in quantity. This is a little unrealistic, however, imagine that you are selling pictures you created. If it costs you $5 (in printing costs and time) to produce one picture, you would be willing to sell as many as you could for $5, however you would NOT be willing to sell any for less than this price. Additionally, if people offered you more than $5, you would be willing to sell an infinite amount (time permitting). This means that you are perfectly price elastic at the $5 mark, and any change in price will cause you to produce nothing or infinity depending on the direction of the price change. This results in a horizontal supply curve.

5/15/12

Comparing perfectly competitive markets with monopolistically competitive markets, the change in surplus and deadweight loss

22:24
Comparing perfectly competitive markets with monopolistically competitive markets, the change in surplus and deadweight loss

This post goes over the math required to show the difference between surplus and equilibrium in a perfectly competitive and monopolistically competitive market. Note that a monopolistically competitive market's math and graph will be the same for a monopoly or an oligopoly.  Here are the equations to work with:

P = 40 - 8Q
MC = 8

4/10/12

Example of calculating consumer surplus from a College Education

21:18
Example of calculating consumer surplus from a College Education

Receiving a college education is a big deal, and can help improve your opportunities later in life.  For most people, the benefits of receiving a college education far outweigh the costs, which is an example of consumer surplus.  This post goes over the economics of calculating consumer surplus using the market for College Education as an example.

3/6/12

Calculating changes in consumer and producer surplus after regulating a monopoly

20:01
Calculating changes in consumer and producer surplus after regulating a monopoly

This economics question and answer goes over how to calculate changes in consumer and producer surplus with limited information.  The question asks about a monopoly market that is subject to government regulation in an attempt to increase societal welfare (or total economic surplus).  The actual question being looked at is:

A refrigerator monopolist, because of strong economies of scale, could charge a price of $120 and sell 45 refrigerators in Iceland and its average cost would be $60. On the other hand, the Iceland Planning Commission has determined that 5 refrigerator suppliers would be sufficiently competitive to make price equal to average cost. The five-firm equilibrium would yield a price of $100 and a total output of 50 refrigerators.