The document discusses a lecture on microeconomics and the efficiency of markets. It introduces key concepts like consumer surplus, producer surplus, and economic surplus. It provides an example of a pizza market to illustrate how consumer and producer surplus are calculated based on differences between what buyers are willing to pay and sellers are willing to accept, versus the market price. The example shows the total surplus increasing when the price drops from 35 to 29.
3. Key Terms
welfare economics
willingness to pay
consumer or buyer surplus value
(consumer surplus)
cost
producer or seller surplus value
(producer surplus)
efficiency
8. Always TwoValues in a
trade
Difference between what I am
willing to pay for and the price
Difference between what I am
willing to sell for and the price
22. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
23. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
24. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
= 60 - 40
= 20
25. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
= 60 - 40
= 20
26. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
= 60 - 40
= 20
Buyer or Consumer
surplus value
above price and
below Buyer value
27. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
= 60 - 40
= 20
Buyer or Consumer
surplus value
above price and
below Buyer value
28. BuyerValue 60
SellerValue 40
Value RangePrice
Price between 40 and 60
will get sold
As long as price is in the
value range the pizza will
sell
0
100
PotentialValue =
BuyerValue - SellerValue
= 60 - 40
= 20
Buyer or Consumer
surplus value
above price and
below Buyer value
Seller or Producer
surplus value
below price and
above Seller value
136. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum
Loss
Loss
137. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum
Loss
Loss
138. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum
Loss
Loss
139. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum
Loss
Loss
140. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum
Loss
Loss
141. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Government
Price
Minimum Consumer Loss
Producer Gain Loss
Loss
142. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 45
Change = Lose 80
Government
Price
Minimum Consumer Loss
Producer Gain Loss
Loss
143. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 45
Change = Lose 80
Producer Surplus Area
Before = 125
After = 165
Change = Gain 40
Government
Price
Minimum Consumer Loss
Producer Gain Loss
Loss
144. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Government Minimum Price
Demand
Supply
Consumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 45
Change = Lose 80
Producer Surplus Area
Before = 125
After = 165
Change = Gain 40
Total Surplus Area
Before = 250
After = 210
Deadweight Loss = 40
Government
Price
Minimum Consumer Loss
Producer Gain Loss
Loss
157. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Government Maximum Price
158. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Government Maximum Price
159. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Government Maximum Price
160. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Government Maximum Price
161. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Loss
Government Maximum Price
162. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Loss
Loss
Government Maximum Price
163. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Loss
Loss
Government Maximum Price
164. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Loss
Loss
Government Maximum Price
165. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Loss
Loss
Government Maximum Price
166. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Government
Price
Maximum
Consumer Gain
Producer Loss
Loss
Loss
Government Maximum Price
167. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 140
Change = Gain 15
Government
Price
Maximum
Consumer Gain
Producer Loss
Loss
Loss
Government Maximum Price
168. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 140
Change = Gain 15
Producer Surplus Area
Before = 125
After = 20
Change = Loss 105
Government
Price
Maximum
Consumer Gain
Producer Loss
Loss
Loss
Government Maximum Price
169. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Demand
SupplyConsumer
Surplus
Producer
Surplus
Consumer Surplus Area
Before = 125
After = 140
Change = Gain 15
Producer Surplus Area
Before = 125
After = 20
Change = Loss 105
Total Surplus Area
Before = 250
After = 160
Deadweight Loss = 90
Government
Price
Maximum
Consumer Gain
Producer Loss
Loss
Loss
Government Maximum Price