Transcript Lecture Thirteen Slides

Chapter 6
The Logic
of
Consumer Choice
Schedule1
Schedule
2
Schedule
3
Schedule
4
Units of A
TU
Units of
B
TU
Units of
C
TU
Units of
D
TU
1
7
1
24
1
36
1
126
2
13
2
44
2
66
2
234
3
18
3
60
3
90
3
324
4
22
4
72
4
108
4
396
5
25
5
82
5
120
5
450
6
28
6
90
6
129
6
486
7
29
7
96
7
135
7
513
8
30
8
100
8
138
8
531
Do RATS understand the inverse
relationship between price and
quantity?
• Choice between two liquids
– Root beer
– Collins mix
• Given 300 pushes (each liquid had a different
number of pushes to get it – price)
• Found rats switched to the “cheaper” liquid when
the “price” changed
Why isn’t education and medical
care free?
• If cost = 0 when do we stop using it?
• When MU = 0
• Thus we will see a lot of frivolous use of
programs. It costs you nothing so use it.
Consumer Surplus
• The difference between the actual price
buyers pay for a good and the maximum
amount they are WILLING and ABLE to
pay for it
• Dollar measure of benefit gained from a
price decrease
Consumer Surplus cont.
• Triangle under the demand curve and
above the equilibrium price out to the
equilibrium quantity
Consumers' Surplus
Part (a)
Pric e
Co ns ume rs ’
S urplus
Windo w
P
S
CS
S
$7
$5
$5
D
0
D
0
100
Quantity
50 100
Q
Changes in Supply affect Consumer
Surplus
• Decrease in the number of sellers
• Advance in technology
• Increase in the price of relevant
resources
• A per-unit subsidy placed on
producers/seller
Consumers' Surplus
Pric e
S2
Part (b)
Windo w
A
A
S1
P2
P1
CS with S 1 :
B
C
P1
C
A
CS with S 2 :
P2
D1
0
Quantity
B
Sales schemes
• Consumer is willing to buy
– One pair of shorts for $40
– Second pair of shorts for $30
• Store has a choice
– Sell shorts for $30
– Have sale where buy first for $40 get $10
off second pair?
– Which has more CS??? (hint only use the
demand curve)
Consumers’ Surplus and
Two Pricing Schemes
Pric e
Pric e
A
Bo b’s demand
fo r pairs o f
tro us e rs
$40
$30
Pric e
A
($30) F
Cas e whe n
e ac h
pair o f ($40) C
tro us e rs
D is $30 ($30)F
Cas e whe n
firs t
pair o f
B
tro us e rs
D is $40 and
E
s e c o nd pair
is $30
D
0
Pairs o f
Tro us e rs
D
D
0
1
2
Pairs o f
Tro us e rs
(a)
0
2
(b)
1
Pairs o f
Tro us e rs
2
(c )
Do we understand
Chapter 6??
In-class exercise 6
Chapter 6 homework
Numbers 3 and 4
Working with graphs and numbers
1, 3, 4 and 5