Consumer surplus introduction | Consumer and producer surplus | Microeconomics | Khan Academy

Summary

The video script explains the concept of a demand curve as a marginal benefit curve, illustrating how each unit of a good sold reflects the marginal benefit to the consumer. It uses the example of selling cars at different prices to show how consumer surplus is created when the price is lower than the marginal benefit. The total consumer surplus is calculated as the sum of the differences between the marginal benefit and the price for each unit sold, highlighting a potential inefficiency for sellers who could have charged more for the first few units.

Takeaways

• 📈 The demand curve can be viewed as a marginal benefit curve, showing the marginal benefit for each additional unit sold.
• 🚗 For the first unit of a new car, the marginal benefit might be as high as $60,000 if someone really wants it.
• 📉 As more units are sold, the marginal benefit decreases; the second unit might have a marginal benefit of $50,000.
• 💸 The marginal benefit continues to decrease with each additional unit, reflecting diminishing marginal utility.
• 💵 If the price is set at $30,000, the fourth person is indifferent, with a marginal benefit equal to the price.
• 🤔 The concept of consumer surplus is introduced, which is the difference between what consumers are willing to pay and what they actually pay.
• 💲 Consumer surplus for the first unit is $30,000, for the second unit is $20,000, and for the third unit is $10,000.
• 🔢 The total consumer surplus in this scenario is $60,000, calculated by summing the surplus for each unit sold.
• 💼 From the seller's perspective, selling at a single price may result in lost revenue, as earlier units could have been sold at higher prices.
• 📚 The script hints at the concept of price discrimination, suggesting that selling at different prices to different consumers could maximize revenue.

Q & A

What is the relationship between the demand curve and the marginal benefit curve?

The demand curve can be viewed as a marginal benefit curve, where each point on the curve represents the marginal benefit for the incremental unit of the good being sold.

How does the marginal benefit change as more units are sold?

As more units are sold, the marginal benefit typically decreases because each additional unit is less valuable to the consumer than the previous one.

What is the marginal benefit for the first unit of the new car in the example?

The marginal benefit for the first unit of the new car is $60,000.

Why does the marginal benefit decrease from the first to the second unit in the example?

The marginal benefit decreases because the second car might be bought by the same person who already has one, or by someone else who values it less than the first buyer.

What is the marginal benefit for the third unit of the new car?

The marginal benefit for the third unit is $40,000, indicating that the third person is willing to pay that amount for the car.

How does the price affect the marginal benefit and consumer surplus?

When the price is set at $30,000, the marginal benefits for the first three units are higher than the price, creating a consumer surplus.

What is the consumer surplus for the first unit sold at $30,000?

The consumer surplus for the first unit is $30,000, which is the difference between the marginal benefit and the price paid.

How is the total consumer surplus calculated in the scenario?

The total consumer surplus is calculated by summing the consumer surplus for each unit sold, which is the difference between the marginal benefit and the price paid for each unit.

What is the total consumer surplus in the scenario where four units are sold at $30,000?

The total consumer surplus in this scenario is $60,000, which is the sum of $30,000, $20,000, and $10,000 for the first three units.

Why is it unideal for the seller to sell at a lower price than the marginal benefit for the first few consumers?

It's unideal for the seller because they could potentially sell the first few units at a higher price, capturing more revenue from those consumers who are willing to pay more.

What is the implication of setting one price for everyone in the context of the script?

Setting one price for everyone means that the seller might not maximize revenue from consumers who are willing to pay more, leading to potential lost revenue.