03. Bai giang 0. Nhac lai Kinh te vi mo (Dec 2016)

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Contents
• Consumer Surplus
• Producer Surplus
• Social Surplus/Net Welfare

Lecture 0. Revision of Microeconomics

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1

2

Consumer Surplus
• Welfare economics
– How the allocation of resources affects economic
well-being

Consumer Surplus

• Willingness to pay
– Maximum amount that a buyer will pay for a good

• Consumer surplus
– Amount a buyer is willing to pay for a good
– Minus amount the buyer actually pays for it

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3

4

Table 1

Consumer Surplus

Four possible buyers’ willingness to pay
Buyer
Tý
Sửu
Dần
Mão

• Using the demand curve to measure
consumer surplus

Willingness to pay
$100
80
70
50

– Consumer surplus
• Closely related to the demand curve

– Demand schedule

• Derived from the willingness to pay of the possible
buyers

– At any quantity
• Price given by the demand curve
– Willingness to pay of the marginal buyer

5

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1


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Table 2

Figure 1

The demand schedule

Price
More than $100
$80 to $100

$70 to $80
$50 to $70
$50 or less

The demand curve

Buyers
None
Tý
Tý, Sửu
Tý, Sửu, Dần
Tý, Sửu, Dần, Mão

Price of
Albums

Quantity
Demanded
0
1
2
3
4

Tý’s willingness to pay

$100

Sửu’s willingness to pay

80
70

Dần’s willingness to pay

Mão’s willingness to pay

50

Demand
0

The table shows the demand schedule for the buyers in Table 1.
7

Consumer Surplus
• Using the demand curve to measure
consumer surplus
• Demand curve
– Reflects buyers’ willingness to pay
– Measure consumer surplus

1

2
3
4
Quantity of Albums
The graph shows the corresponding demand curve. Note that the
height of the demand curve reflects buyers’ willingness to pay.

Figure 2
Measuring consumer surplus with the demand curve
(a) Price = $80

Price of
Albums

(b) Price = $70

Price of
Albums

Tý’s consumer
surplus ($20)

$100

Tý ’s consumer
surplus ($30)

$100

80
70

80
70

50

50

• Consumer surplus in a market

Sửu ’s consumer
surplus ($10)

Total consumer
surplus ($40)

Demand

– Area below the demand curve and above the price
0

1

2

3

Demand

4

0

1

Quantity of Albums

2

3

4

Quantity of Albums

In panel (a), the price of the good is $80, and the consumer surplus is $20. In
panel (b), the price of the good is $70, and the consumer surplus is $40.

9

Consumer Surplus

How the price affects consumer surplus
(b) Consumer surplus at price P2
Price

Price
A

A

Consumer
surplus

Initial

consumer
surplus

– Initial price, P1
• Quantity demanded Q1
• Given consumer surplus

– New, lower price, P2
• Greater quantity demanded, Q2

10

Figure 3
(a) Consumer surplus at price P1

• How a lower price raises consumer surplus
• Buyers - always want to pay less

8

P1

C

P1

Additional consumer
surplus to initial
consumers

C

Consumer surplus
to new consumers

B

B

F

P2
Demand

D

E

Demand

– New buyers

• Increase in consumer surplus
– From initial buyers
– From new buyers

11

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Q1
Q2
Q1
0
0
Quantity
Quantity
In panel (a), the price is P1, the quantity demanded is Q1, and consumer surplus equals the area of the triangle
ABC. When the price falls from P1 to P2, as in panel (b), the quantity demanded rises from Q1 to Q2, and the
consumer surplus rises to the area of the triangle ADF. The increase in consumer surplus (area BCFD) occurs
in part because existing consumers now pay less (area BCED) and in part because new consumers enter the
12
market at the lower price (area CEF).

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Consumer Surplus

Fig. 8-7: Geometry of Consumer Surplus

• Consumer surplus measures the amount that
consumers gain from purchases by the difference in
the price that each pays from the maximum price
each would be willing to pay.

– The maximum price each would be willing to pay is
determined by a demand (willingness to buy) function.
– When the price increases, the quantity demanded
decreases as well as the consumer surplus.

Consumer Surplus
• What does consumer surplus measure?
• Consumer surplus

Producer Surplus

– Benefit that buyers receive from a good
• As the buyers themselves perceive it

– Good measure of economic well-being
– Exception: Illegal drugs
• Drug addicts
– Willing to pay a high price for heroin

• Society’s standpoint
– Drug addicts don’t get a large benefit from being able to buy
heroin at a low price

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Producer Surplus
• Cost and the willingness to sell
• Cost
– Value of everything a seller must give up to
produce a good

• Producer surplus

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16

Table 3

The costs of four possible sellers
Seller

Willingness to sell

Giáp
Ất
Bính
Đinh

$900
800
600
500

– Amount a seller is paid for a good
– Minus the seller’s cost of providing it

17

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18

3


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Table 4

Producer Surplus

The supply schedule

• Using the supply curve to measure producer
surplus

Price

– Producer surplus

Sellers

$900 or more
$800 to $900
$600 to $800
$500 to $600

Less than $500

• Closely related to the supply curve

– Supply schedule
• Derived from the costs of the suppliers

– At any quantity

Quantity
Supplied

Giáp, Ất, Bính, Đinh
Ất, Bính, Đinh
Bính, Đinh
Đinh
None

4
3
2
1
0

• Price given by the supply curve
– Cost of the marginal seller

The table shows the supply schedule for the sellers in Table 3.

19

20

Figure 4

Producer Surplus

The supply curve
Price of
House
Painting
$900
800

• Using the supply curve to measure producer
surplus
• Supply curve

Supply
Giáp’s cost
Ất’s cost

600
500

– Reflects sellers’ costs
– Measure producer surplus

Bính’s cost
Đinh’s cost

• Producer surplus in a market
– Area below the price and above the supply curve
0

1

2
3
4
Quantity of Houses Painted

The graph shows the corresponding supply curve. Note that the
height of the supply curve reflects sellers’ costs.

21

22

Figure 5

Producer Surplus

Measuring producer surplus with the supply curve
(a) Price = $600

Price of
House
Painting

Supply

Price of
House
Painting

$900
800

$900
800

600
500

600
500

Đinh’s producer
surplus ($100)

(b) Price = $800
Supply
Total producer
surplus ($500)

• How a higher price raises producer surplus
• Sellers - want to receive a higher price
– Initial price, P1
• Quantity supplied, Q1

• Given producer surplus

Bính’s producer
surplus ($200)

– New, higher price, P2
• Greater quantity supplied, Q2

Đinh’s producer
surplus ($300)

– New producers

• Increase in producer surplus

0

1

2

3

4

Quantity of Houses Painted

0

1

2

3

In panel (a), the price of the good is $600, and the producer surplus is $100.
In panel (b), the price of the good is $800, and the producer surplus is $500.

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– From initial suppliers
– From new suppliers

4

Quantity of Houses Painted
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Figure 6

Producer Surplus

How the price affects producer surplus
(b) Producer surplus at price P2

(a) Producer surplus at price P1
Price

Price

P2
P1

B
Producer
surplus

A

C

Supply

Additional producer
surplus to initial
producers

Supply

P1

D

E

Producer surplus
to new producers

B
Initial
consumer
surplus

F

C

A

Q1
Q2 Quantity
Q1
0
0
Quantity
In panel (a), the price is P1, the quantity supplied is Q1, and producer surplus equals the area of the triangle
ABC. When the price rises from P1 to P2, as in panel (b), the quantity supplied rises from Q1 to Q2, and the
producer surplus rises to the area of the triangle ADF. The increase in producer surplus (area BCFD) occurs
in part because existing producers now receive more(area BCED) and in part because new producers enter
25

the market at the higher price (area CEF).

• Producer surplus measures the amount that
producers gain from a sale by the difference in the
price each receives from the minimum price each
would be willing to sell at.
– The minimum price each would be willing to sell at is
determined by a supply (willingness to sell) function.
– When price increases, the quantity supplied increases as
well as the producer surplus.

Copyright © 2009 Pearson Add
ison-Wesley. All rights reserved
.

8-26

Fig. 8-8: Geometry of Producer Surplus

Social Surplus/ Total Surplus

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Market Efficiency
• The benevolent social planner

Figure 7
Consumer and producer surplus in the market equilibrium
Price
A

– Total surplus = Consumer surplus + Producer
surplus
• Consumer surplus = Value to buyers – Amount paid by
buyers
• Producer surplus = Amount received by sellers – Cost to
sellers
• Amount paid by buyers = Amount received by sellers

– Total surplus = Value to buyers – Cost to sellers
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28

Supply
D

Equilibrium
price

Consumer
surplus
E
Producer
surplus
B

Demand

C

0

Equilibrium
quantity

Quantity

Total surplus—the sum of consumer and producer surplus—is the area
between the supply and demand curves up to the equilibrium quantity.

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Phân tích chính sách
Trước khi có
chính sách

Sau khi có
chính sách

Chênh lệch (Δ)

Giá (P)

---

Sản lượng (Q)

---

Thặng dư tiêu
dùng (CS)
Thặng dư sản
xuất (PS)
Tiền thuế chính
phủ thu (G)
Tổng phúc lợi
xã hội (SS/NW)

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6