Jim Whitney | Economics 102 |
Key concepts:
Marginal benefit (MB) = change in TB from consuming
another unit
Marginal expenditure (ME) = change in TE from buying
another unit, which = the price of the item (P)
Optimality condition: buy more until MB =
P --> Q*
In the top diagram, Q* occurs where the slope of
TB (MB) = the slope of TE (P).
In the bottom diagram Q* occurs where MB crosses
P.
Results:
The consumer's MB curve is the consumer's demand
curve (D).
Consumer surplus:
In the top diagram: the gap between TB and TE.
In the bottom diagram: the area between the consumer's
demand curve and the price out to the quantity consumed.
To do:
1. Label Q*
2. Given Q*, indicate where CS shows up in both
the top and bottom diagrams.