Lectures in Microeconomics-Charles W. Upton More on Consumer Surplus.

Lectures in Microeconomics-Charles W. Upton

More on Consumer Surplus

02468

101214161820

Tri

ps

per

Yea

r

1 hour 2 hours 3 hours 4 hours

More on Consumer Surplus

More on Consumer Surplus

• The Concept of Consumer Surplus is quite powerful.

More on Consumer Surplus

More on Consumer Surplus

• The Concept of Consumer Surplus is quite powerful.

• I want to show some applications of this concept.

More on Consumer Surplus

Valuing the Benefit of a Project

• The Government builds a new dam, creating a new lake. What are the recreational benefits from this lake?

• We can analyze this with consumer surplus

More on Consumer Surplus

Valuing the Benefit of a Project

02468

101214161820

Tri

ps

per

Yea

r

1 hour 2 hours 3 hours 4 hours

More on Consumer Surplus

Valuing the Benefit of a Project

02468

101214161820

Tri

ps

per

Yea

r

$10 $20 $30 $40

More on Consumer Surplus

Valuing the Benefit of a Project

$0

$5

$10

$15

$20

$25

$30

$35

$40

5 10 15 20

More on Consumer Surplus

Valuing the Benefit of a Project

$0

$5

$10

$15

$20

$25

$30

$35

$40

5 10 15 20

More on Consumer Surplus

Valuing the Benefit of a Project

$0

$5

$10

$15

$20

$25

$30

$35

$40

5 10 15 20

More on Consumer Surplus

The Benefit

40

25

More on Consumer Surplus

The Benefit

40

25

500)40)(25(2

1

2

1 BHCS

More on Consumer Surplus

A Simple Application

• Demand for a swimming pool:V =300,000 - 30,000p

More on Consumer Surplus

A Simple Application

• Demand for a swimming pool:V =300,000 - 30,000p

• Current capacity is 200,000

More on Consumer Surplus

A Simple Application

• Demand for a swimming pool:V =300,000 - 30,000p

• Current capacity is 200,000• What Price Restricts Demand?

More on Consumer Surplus

A Simple Application

• Demand for a swimming pool:V =300,000 - 30,000p

• Current capacity is 200,000• What Price Restricts Demand?

200,000=300,000-30,000p

p=$3.33

More on Consumer Surplus

A Simple Application

• Demand for a swimming pool:V =300,000 - 30,000p

• Current capacity is 300,000• What Price Restricts Demand?• Should it be expanded to

300,000?

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

667,166$)33.3)($000,100(2

1

2

1 BHGain

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

667,166$)33.3)($000,100(2

1

2

1 BHGain

So what are the Costs?

More on Consumer Surplus

A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

667,166$)33.3)($000,100(2

1

2

1 BHGain

So what are the Costs?

If C<$166,667 Expand

If C> $166,667 Don’t

More on Consumer Surplus

End

©2004 Charles W. Upton