The marginal valuation of the good, establish the consumer surplus and derive the demand curve. Concept Introduction: Consumer Surplus – The excess of consumers’ willingness to pay over what they actually pay (the ability to pay) for a good or service relative to the market price is the economic measure of consumer benefit known as the consumer surplus. Law of demand – The law states that as the price of a commodity falls its quantity demanded increases and vice versa, assuming all other variables to be constant. Linear Demand Equation – It expresses the quantity demanded as a function of price in the form, Qd= b + mp where b is the intercept and the slope m is constant. In other words, change in Qd with a one unit change in price is constant for a linear demand function. Law of Diminishing Marginal Utility – The law states that we consume more and more of a commodity, keeping the consumption of all other variables constant, the utility derived from the consumption of every additional unit diminishes. The marginal utility thus diminishes.

BuyFind

ECON MICRO

5th Edition
William A. McEachern
Publisher: Cengage Learning
ISBN: 9781337000536
BuyFind

ECON MICRO

5th Edition
William A. McEachern
Publisher: Cengage Learning
ISBN: 9781337000536

Solutions

Chapter 6, Problem 3.7P
To determine

The marginal valuation of the good, establish the consumer surplus and derive the demand curve.

Concept Introduction:

Consumer Surplus – The excess of consumers’ willingness to pay over what they actually pay (the ability to pay) for a good or service relative to the market price is the economic measure of consumer benefit known as the consumer surplus.

Law of demand – The law states that as the price of a commodity falls its quantity demanded increases and vice versa, assuming all other variables to be constant.

Linear Demand Equation – It expresses the quantity demanded as a function of price in the form, Qd= b + mp where b is the intercept and the slope m is constant. In other words, change in Qd with a one unit change in price is constant for a linear demand function.

Law of Diminishing Marginal Utility – The law states that we consume more and more of a commodity, keeping the consumption of all other variables constant, the utility derived from the consumption of every additional unit diminishes. The marginal utility thus diminishes.

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