Summary Welfare in the Market

wellfare In the market


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