Copyright © 2011 Cengage Learning 7 Consumers, Producers, and the Efficiency of Markets

77Consumers, Producers, and the

Efficiency of Markets

Table 1 Four Possible Buyers’ Willingness to Pay

Figure 1 The Demand Schedule and the Demand Curve (1)

Figure 1 The Demand Schedule and the Demand Curve (2)

Price ofalbum

0 Quantity ofalbums

Demand

1 2 3 4

€100 Liam’s willingness to pay

80 Paul’s willingness to pay

70 Noel ’s willingness to pay

50 Tony ’s willingness to pay

Figure 2 Measuring Consumer Surplus with the Demand Curve (1)

(a) Price = €80

Price ofalbum

€100

Demand

1 2 3 4 Quantity ofalbums

Liam’s consumer surplus (€20)

Figure 2 Measuring Consumer Surplus with the Demand Curve (2)

(b) Price = €70Price of

€100

Demand

1 2 3 4

Totalconsumersurplus (€40)

Quantity ofalbums

Liam’s consumer surplus (€30)

Paul’s consumersurplus (€10)

Figure 3 How the Price Affects Consumer Surplus (1)

Consumersurplus

Quantity

(a) Consumer surplus at price P

Demand

Figure 3 How the Price Affects Consumer Surplus (2)

Initialconsumer

surplus

Quantity

(b) Consumer surplus at price P

Demand

Consumer surplusto new consumers

Additional consumersurplus to initial consumers

Table 2 The Costs of Four Possible Sellers

Figure 4 The Supply Schedule and the Supply Curve (1)

Figure 4 The Supply Schedule and the Supply Curve (2)

Figure 5 Measuring Producer Surplus with the Supply Curve (1)

Quantity ofhouses painted

Price ofhouse

painting

€900

1 2 3 4

(a) Price = €600

Supply

’Nana’s producersurplus (€100)

Figure 5 Measuring Producer Surplus with the Supply Curve (2)

Quantity ofhouses painted

Price ofhouse

painting

€900

1 2 3 4

(b) Price = €800

Georgia’s producersurplus (€200)

Totalproducersurplus (€500)

’Nana’s producersurplus (€300)

Supply

Figure 6 How the Price Affects Producer Surplus (1)

Producersurplus

Quantity

(a) Producer surplus at price P

Supply

Figure 6 How the Price Affects Producer Surplus (2)

Quantity

(b) Producer surplus at price P

Supply

Initialproducersurplus

Producer surplusto new producers

Additional producersurplus to initialproducers

Figure 7 The Effect of a Subsidy on the Price of Gasoline

Figure 8 Consumer and Producer Surplus in the Market Equilibrium

Producersurplus

Consumersurplus

0 Quantity

Equilibriumprice

Equilibriumquantity

Supply

Demand

Figure 9 The Efficiency of the Equilibrium Quantity

Quantity

Supply

Demand

Costto

sellers

Costto

sellers

Valueto

buyers

Valueto

buyers

Value to buyers is greaterthan cost to sellers.

Value to buyers is lessthan cost to sellers.

Equilibriumquantity

Copyright © 2011 Cengage Learning 7 Consumers, Producers, and the Efficiency of Markets

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