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SUPPLY & DEMAND

MARGINAL COSTS AND BENEFITS
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MC

amount that costs change when one more good is produced

# GOODS PRODUCED
TOTAL COST
MARG COST
4
35
---
5
40
5
6
46
6
7
54
8

MARGINAL COST INCREASES:
-thus supply also increases

MB

measure of how much one more good consumed benefits a buyer

# OF COFFEE CUPS
WILLINGNESS TO PAY
MARGINAL BENEFIT
1
$3
$3
2
$4.80
4.80-3=$1.80
3
$5.80
1
4
$6
.20

let's say the price per cup is $1.50   the consumer would buy 2 cups based on his marginal benefit.  at the 3rd cup, the consumer's marginal benefit is less than the the price (marginal cost in this case)

consumer surplus = the difference between Marginal Benefit and Price (Marginal Cost) of consuming goods
 
MB - MC = CS

demand in a market is representative  of all consumer's Marginal Benefit of consuming

Created Fall 2004
WFU '08