Chapter Fourteen Consumers Surplus
Chapter Fourteen Consumer’s Surplus
Monetary Measures of Gains-to T rade 4 You can buy as much rice as you wish at RMB1 per kilogram once you enter the gasoline market .Q: What is the most you would pay to enter the market?
Monetary Measures of Gains-toTrade ◆You can buy as much rice as you wish at RMB1 per kilogram once you enter the gasoline market. ◆Q: What is the most you would pay to enter the market?
Monetary measures of Gains-to Trade A: You would pay up to the dollar value of the gains-to-trade you would enjoy once in the market How can such gains-to-trade be measured?
◆A: You would pay up to the dollar value of the gains-to-trade you would enjoy once in the market. ◆How can such gains-to-trade be measured? Monetary Measures of Gains-toTrade
Monetary measures of Gains-to Trade e Three such measures are: ● Consumer' s Surp|us EQuivalent Variation, and O Compensating Variation Only in one special circumstance do these three measures coincide
◆Three such measures are: ⚫Consumer’s Surplus ⚫Equivalent Variation, and ⚫Compensating Variation. ◆Only in one special circumstance do these three measures coincide. Monetary Measures of Gains-toTrade
S Equivalent Utility gains Suppose rice can be bought only in lumps of one kilogram o Use r, to denote the most a single consumer would pay for a 1st kilogram -call this her reservation price for the 1st kilogram .r, is the dollar equivalent of the marginal utility of the 1st kilogram
◆Suppose rice can be bought only in lumps of one kilogram. ◆Use r1 to denote the most a single consumer would pay for a 1st kilogram -- call this her reservation price for the 1st kilogram. ◆r1 is the dollar equivalent of the marginal utility of the 1st kilogram. $ Equivalent Utility Gains