Lectures in Microeconomics-Charles W. Upton

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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.

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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

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Valuing the Benefit of a Project

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Valuing the Benefit of a Project

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Valuing the Benefit of a Project

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Valuing the Benefit of a Project

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More on Consumer Surplus

Valuing the Benefit of a Project

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The Benefit

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The Benefit

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500)40)(25(2

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1 BHCS

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A Simple Application

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

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A Simple Application

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

• Current capacity is 200,000

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A Simple Application

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

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

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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

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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?

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A Simple Application

V = 300,000-30,000p

$10

300,000

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A Simple Application

V = 300,000-30,000p

$10

300,000

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A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

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A Simple Application

V = 300,000-30,000p

$10

300,000

$3.33

200,000

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

1

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1 BHGain

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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?

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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

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End

©2004 Charles W. Upton