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The Laws of Demand and Supply
Diminishing Marginal Utility
• Principle of Diminishing Marginal Returns: general tendency for marginal utility to decrease as the quantity of a good consumed increases– Can be used to determine one’s individual
demand curve for a product– Measured in units of utility
Consumer Surplus
• Consumer Surplus = marginal benefit from a good minus the price paid for that good, summed over the quantity consumed
• How to calculate consumer surplus…
Producer Surplus
• Producer Surplus: amount seller is paid minus the seller’s cost– Also the area under the
equilibrium price and above the supply curve
– How to calculate producer surplus…• (HINT: Same way as
consumer surplus…)
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