Chapter7-Consumers,producers,andtheefficiencyofmarkets.ppt

* * * * Some students mistake the upper vertical intercept ($60 in this example) for the height of the blue triangle: they forget to subtract off the height of the bottom of the triangle from the height of the top of the triangle. So, the first one or two times, it might be worthwhile to show them how to find the height of the triangle. * * The book shows how a lower price increases CS. * * * * The material on cost, producer surplus, and the supply curve is analogous to the material earlier on WTP, consumer surplus, and the demand curve. Therefore, this section provides a bit less detail and should move a little more quickly. * * Your students should be able to figure out how to get the Qs numbers in the second column of the table. * * The derivation of the staircase-supply curve is analogous to that of the staircase demand curve in the earlier example. Hence, the animation is not as detailed. * * For your students’ future reference, you might also note that we can use the term “marginal cost” as short-hand for “cost of the marginal seller.” * * * * * * * * * * * * * * It might help to say “participating in the market” means buying and selling. It might also help to say that CS measures the net benefit to buyers: the value they get from the good is the gross benefit, minus what they pay leaves the net benefit, or CS. Similarly, PS is the net benefit to sellers. I did not put “net benefit” on this slide because it is not in the book. But if you wish, you may add it. After showing this slide in class, I show my students a short scene from the movie “Pretty Woman” as an example of these concepts. In this scene, Julia Roberts is taking a bubble bath in Richard Gere’s hotel room (don’t worry – there’s no nudity!). Gere comes into the bathroom and they negotiate a price for her to “be at his beck and call” for one week. After bargaining for a few seconds, they agree on a price of $3000. A minute later, he says he would have paid $4000 (his w