Consumer Surplus and price discrimination Flashcards
___ the difference between the maximum price one is willing to pay and the price actually paid
consumer surplus
A person high up on the demand curve is willing to pay a lot for a good
consumer surplus
a person down low on the demand curve is not willing to pay very much for a good
consumer surplus
the demand curve represents what each potential buyer is willing to pay for a good
consumer surplus
If a person’s maximum price exceeds the market price, he or she will buy and accumulate consumer surplus
consumer surplus
If a person’s maximum price is less than the market price, he or she will not buy and will gain no consumer surplus
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___ the sale of an individual good at different prices to different consumers
price discrimination
the technique behind price discrimination is
“divide and conquer”
all MU/P ratios must be greater than 1 to be considered
choosing among products
For a normal good, a fall in price always increases the quantity consumed, which can be proved by dividing the price effect in two parts
substitution effect and income effect
When the price of an item declines the consumer will no longer be in equilibrium until more of the item is purchased and the marginal utility of the item declines to match the decline in price
substitution effect
Always acts to increase consumption of a good whose price declines and to decrease consumption of a good whose price increases
substitution effect
Decline in price expands the consumer’s real income and the consumer must purchase more of this an other products until equilibrium is attained for the new level or real income
income effect
increased income causes an increased ability to pay for normal goods and decreased your willingness to pay for an inferior good
income effect
The sum of all our individual demands for a product
market demand
