Summary
By :
Rahadi
Sri Rahmanto (120720140028)
This
video explained why consumer and producer entering particular market of good or
service. Both the consumer and the
producer go to the market because of consumer surplus and producer surplus
respectively.
Looking at
the supply-demand curve, we could see how much consumer willing to pay for certain
quantity of goods as well as how much producer willing to receive in return for
certain quantity of goods.
Consumer surplus is the gap between the total utility
of a good and its total market value. The surplus arises as result of the law
of diminishing marginal utility. According to this law, the earlier units consumed
are worth more to us than the last. Consumer surplus indicates the extra value
that consumers obtain above what they pay for a good.
Producer surplus is defined as the difference between
the amount the producer is willing to supply goods for and the actual amount
received by him when he makes the transaction.
For the
market as a whole, consumer surplus is visualized by the entire area under the
demand curve and above the line representing the purchase price of the good (This
reflects the fact that consumers would have been willing to buy a single unit
of the good at a price higher than the equilibrium price). Producer surplus, on
the other hand, is illustrated by the entire area above the supply curve up to
the market price.
The
total value of the market (also called measure of welfare) itself is represented by total surplus which
is the summation of the consumer surplus and the producer surplus.
References
:
1. Pindyck, Robert S. & Rubinfeld,
Daniel L.2009, Microeconomics. New Jersey : Prentice Hall
2. Nordhaus, William D. & Samuelson,
Paul A. 2010, Economics. New York : McGraw Hill
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