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121
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rkets
WHAT’S NEW IN THE SEVENTH EDITION:
There is a new In the News feature on "The Invisible Hand Can Park Your Car."
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
➢ the link between buyers’ willingness to pay for a good and the demand curve.
➢ how to define and measure consumer surplus.
➢ the link between sellers’ costs of producing a good and the supply curve.
➢ how to define and measure producer surplus.
➢ that the equilibrium of supply and demand maximizes total surplus in a market.
CONTEXT AND PURPOSE:
Chapter 7 is the first chapter in a three-chapter sequence on welfare economics and market efficiency.
Chapter 7 employs the supply and demand model to develop consumer surplus and producer surplus as a
measure of welfare and market efficiency. These concepts are then utilized in Chapters 8 and 9 to
determine the winners and losers from taxation and restrictions on international trade.
The purpose of Chapter 7 is to develop welfare economics—the study of how the allocation of
resources affects economic well-being. Chapters 4 through 6 employed supply and demand in a positive
framework, which focused on the question, “What is the equilibrium price and quantity in a market?” This
chapter now addresses the normative question, “Is the equilibrium price and quantity in a market the
best possible solution to the resource allocation problem, or is it simply the price and quantity that
balance supply and demand?” Students will discover that under most circumstances the equilibrium price
and quantity is also the one that maximizes welfare.
7 CONSUMERS, PRODUCERS, AND
THE EFFICIENCY OF MARKETS
122 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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KEY POINTS:
• Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay,
and it measures the benefit buyers get from participating in a market. Consumer surplus can be
computed by finding the area below the demand curve and above the price.
• Producer surplus equals the amount sellers receive for their goods minus their costs of production,
and it measures the benefit sellers get from participating in a market. Producer surplus can be
computed by finding the area below the price and above the supply curve.
• An allocation of resources that maximizes the sum of consumer and producer surplus is said to be
efficient. Policymakers are often concerned with the efficiency, as well as the equality, of economic
outcomes.
• The equilibrium of supply and demand maximizes the sum of consumer and producer surplus. That
is, the invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently.
• Markets do not allocate resources efficiently in the presence of market failures such as market power
or externalities.
CHAPTER OUTLINE:
I. Definition of welfare economics: the study of how the allocation of resources affects
economic well-being.
II. Consumer Surplus
A. Willingness to Pay
1. Definition of willingness to pay: the maximum amount that a buyer will pay for a
good.
2. Example: You are auctioning a mint-condition recording of Elvis Presley’s first album. Four
buyers show up. Their willingness to pay is as follows:
Buyer Willingness to Pay
John $100
Paul $80
George $70
Ringo $50
Table 1
Students often are confused by the use of the word “welfare.” Remind them that we
are talking about social well-being and not public assistance.
Students will understand consumer surplus if you take the time to work through the
Elvis Presley example. If you start with this simple example, students will have no
trouble understanding how to find consumer surplus on a graph.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 123
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If the bidding goes to slightly higher than $80, all buyers drop out except for
John. Because John is willing to pay more than he has to for the album, he
derives some benefit from participating in the market.
3. Definition of consumer surplus: the amount a buyer is willing to pay for a good
minus the amount the buyer actually pays for it.
4. Note that if you had more than one copy of the album, the price in the auction would end up
being lower (a little over $70 in the case of two albums) and both John and Paul would gain
consumer surplus.
Activity 1—Value of a Time Machine
Type: In-class demonstration
Topics: Consumer surplus
Materials needed: None
Time: 10 minutes
Class limitations: Works in any size class
Purpose
Consumer surplus can be a hard concept for students because it is based on avoided expense
rather than on money that is actually exchanged. This example puts a specific dollar value on
consumer surplus.
Instructions
Tell the class, “A new technology has been developed that allows individuals to travel
backward or forward in time. We want to identify the value this time machine provides to
consumers. Let’s assume the four consumers who most desire this product are in this class.”
Choose four student names and use them in the following example:
“Scott is the consumer who most values this product. He wants to go back to the time of
the dinosaurs. He is willing to pay $3,000.”
“Carol is the consumer with the next highest willingness to pay. She would like to see 200
years in the future. She’d pay $2,500.”
“Steve is the next highest bidder. He’d like to relive this entire semester. He’ll pay up to
$800.”
“Jeanne is our fourth consumer. She’d pay $200 to move the clock forward to the end of
this class period.”
On the board write:
Scott $3,000
Carol $2,500
Steve $800
Jeanne $200
124 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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B. Using the Demand Curve to Measure Consumer Surplus
1. We can use the information on willingness to pay to derive a demand curve for the rare Elvis
Presley album.
Price Buyers Quantity
Demanded
More than
$100
None 0
$80 to $100 John 1
$70 to $80 John, Paul 2
$50 to $70 John, Paul,
George
3
$50 or less John, Paul,
George, Ringo
4
2. At any given quantity, the price given by the demand curve reflects the willingness to pay of
the marginal buyer. Because the demand curve shows the buyers’ willingness to pay, we can
use the demand curve to measure consumer surplus.
3. Consumer surplus can be measured as the area below the demand curve and above the
price.
C. How a Lower Price Raises Consumer Surplus
Figure 1
Figure 2
Figure 3
“This represents the demand curve for the time machine. Consumer surplus is the difference
between what consumers are willing to pay and the amount they actually have to pay. The
market price will determine who uses the time machine and how much surplus they keep.”
“If the price of a time machine ride was $500, three rides would be sold—one to Scott, one to
Carol, and one to Steve. Jeanne is not willing to pay $500, so she wouldn’t time travel.”
“We can calculate the consumer surplus of three time trips. Scott would pay $3,000 but only
pays $500, leaving $2,500 of net benefits.” (Put these numbers on the board.) “Carol has net
benefits of $2,000. Steve has $300 in net benefits. Adding up these net savings gives $4,800
in consumer surplus.”
Points for Discussion
The consumer surplus depends on a good’s selling price and the number of consumers who
are willing to purchase the good at that price. The lower the price, the greater the consumer
surplus.
Quantity
80
Price of
Album
1 2 3 4
0
100
70
50
Demand
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 125
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1. As price falls, consumer surplus increases for two reasons.
a. Those already buying the product will receive additional consumer surplus because they
are paying less for the product than before (area A on the graph).
b. Because the price is now lower, some new buyers will enter the market and receive
consumer surplus on these additional units of output purchased (area B on the graph).
D. What Does Consumer Surplus Measure?
1. Remember that consumer surplus is the difference between the amount that buyers are
willing to pay for a good and the price that they actually pay.
2. Thus, it measures the benefit that consumers receive from the good as the buyers
themselves perceive it.
III. Producer Surplus
A. Cost and the Willingness to Sell
1. Definition of cost: the value of everything a seller must give up to produce a good.
ALTERNATIVE CLASSROOM EXAMPLE:
Review the material on price ceilings from Chapter 6. Redraw the market for two-bedroom
apartments in your town. Draw in a price ceiling below the equilibrium price.
Then go through:
▪ consumer surplus before the price ceiling is put into place.
▪ consumer surplus after the price ceiling is put into place.
It is important to stress that consumer surplus is measured in monetary terms.
Consumer surplus gives us a way to place a monetary cost on inefficient market
outcomes (due to government involvement or market failure).
126 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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2. Example: You want to hire someone to paint your house. You accept bids for the work from
four sellers. Each painter is willing to work if the price you will pay exceeds her opportunity
cost. (Note that this opportunity cost thus represents willingness to sell.) The costs are:
Seller Cost
Mary $900
Frida $800
Georgia $600
Grandma $500
3. Bidding will stop when the price gets to be slightly below $600. All sellers will drop out except
for Grandma. Because Grandma receives more than she would require to paint the house,
she derives some benefit from producing in the market.
4. Definition of producer surplus: the amount a seller is paid for a good minus the
seller’s cost of providing it.
5. Note that if you had more than one house to paint, the price in the auction would end up
being higher (a little under $800 in the case of two houses) and both Grandma and Georgia
would gain producer surplus.
B. Using the Supply Curve to Measure Producer Surplus
1. We can use the information on cost (willingness to sell) to derive a supply curve for house
painting services.
Price Sellers Quantity
Supplied
$900 or more Mary, Frida,
Georgia, Grandma
4
$800 to $900 Frida, Georgia,
Grandma
3
$600 to $800 Georgia, Grandma 2
$500 to $600 Grandma 1
less than $500 None 0
2. At any given quantity, the price given by the supply curve represents the cost of the marginal
seller. Because the supply curve shows the sellers’ cost (willingness to sell), we can use the
supply curve to measure producer surplus.
3. Producer surplus can be measured as the area above the supply curve and below the price.
Table 2
Figure 4
You will need to take some time to explain the relationship between the producers’
willingness to sell and the cost of producing the good. The relationship between cost
and the supply curve is not as apparent as the relationship between the demand
curve and willingness to pay.
Figure 5
Price of
House
Painting
1 2 3 4
0
900
800
500
600
Supply
Quantity
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 127
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C. How a Higher Price Raises Producer Surplus
1. As price rises, producer surplus increases for two reasons.
a. Those already selling the product will receive additional producer surplus because they
are receiving more for the product than before (area C on the graph).
b. Because the price is now higher, some new sellers will enter the market and receive
producer surplus on these additional units of output sold (area D on the graph).
D. Producer surplus is used to measure the economic well-being of producers, much like consumer
surplus is used to measure the economic well-being of consumers.
IV. Market Efficiency
A. The Benevolent Social Planner
1. The economic well-being of everyone in society can be measured by total surplus, which is
the sum of consumer surplus and producer surplus:
Total Surplus = Consumer Surplus + Producer Surplus
Total Surplus = (Value to Buyers – Amount Paid by Buyers) +
(Amount Received by Sellers – Cost to Sellers)
Figure 6
ALTERNATIVE CLASSROOM EXAMPLE:
Review the material on price floors from Chapter 6. Redraw the market for an agricultural
product such as corn. Draw in a price support above the equilibrium price.
Then go through:
▪ producer surplus before the price support is put in place.
▪ producer surplus after the price support is put in place.
Make sure that you discuss the cost of the price support to taxpayers.
128 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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Because the Amount Paid by Buyers = Amount Received by
Sellers:
2. Definition of efficiency: the property of a resource allocation of maximizing the
total surplus received by all members of society.
3. Definition of equality: the property of distributing economic prosperity uniformly
the members of society.
B. Evaluating the Market Equilibrium
1. At the market equilibrium price:
a. Buyers who value the product more than the equilibrium price will purchase the product;
those who do not, will not purchase the product. In other words, the free market
allocates the supply of a good to the buyers who value it most highly, as measured by
their willingness to pay.
b. Sellers whose costs are lower than the equilibrium price will produce the product; those
whose costs are higher, will not produce the product. In other words, the free market
allocates the demand for goods to the sellers who can produce it at the lowest cost.
2. Total surplus is maximized at the market equilibrium.
Total Surplus = Value to Buyers Cost to Sellers
−
Figure 7
Now might be a good time to point out that many government policies involve a
trade-off between efficiency and equity. When you evaluate government policies, like
price ceilings or floors, you can explain them in terms of equity and efficiency.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 129
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a. At any quantity of output smaller than the equilibrium quantity, the value of the product
to the marginal buyer is greater than the cost to the marginal seller so total surplus
would rise if output increases.
b. At any quantity of output greater than the equilibrium quantity, the value of the product
to the marginal buyer is less than the cost to the marginal seller so total surplus would
rise if output decreases.
3. Note that this is one of the reasons that economists believe Principle #6: Markets are usually
a good way to organize economic activity.
C. In the News: The Invisible Hand Can Park Your Car
1. Parking spots with meters that have variable rates depending on demand and supply can
result in a more efficient allocation of this scarce resource.
2. This article from The New York Times describes an experiment with parking meter rates in
San Francisco..
D. Case Study: Should There Be a Market in Organs?
1. As a matter of public policy, people are not allowed to sell their organs.
a. In essence, this means that there is a price ceiling on organs of $0.
b. This has led to a shortage of organs.
2. The creation of a market for organs would lead to a more efficient allocation of resources,
but critics worry about the equity of a market system for organs.
Figure 8
It would be a good idea to remind students that there are circumstances when the
market process does not lead to the most efficient outcome. Examples include
situations such as when a firm (or buyer) has market power over price or when there
are externalities present. These situations will be discussed in later chapters.
130 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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V. Market Efficiency and Market Failure
A. To conclude that markets are efficient, we made several assumptions about how markets
worked.
1. Perfectly competitive markets.
2. No externalities.
B. When these assumptions do not hold, the market equilibrium may not be efficient.
C. When markets fail, public policy can potentially remedy the situation.
SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes
1. Figure 1 shows the demand curve for turkey. The price of turkey is P1 and the consumer
surplus that results from that price is denoted CS. Consumer surplus is the amount a buyer is
willing to pay for a good minus the amount the buyer actually pays for it. It measures the
benefit to buyers of participating in a market.
Figure 1 Figure 2
2. Figure 2 shows the supply curve for turkey. The price of turkey is P1 and the producer
surplus that results from that price is denoted PS. Producer surplus is the amount sellers are
paid for a good minus the sellers’ cost of providing it (measured by the supply curve). It
measures the benefit to sellers of participating in a market.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 131
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Figure 3
3. Figure 3 shows the supply and demand for turkey. The price of turkey is P1, consumer
surplus is CS, and producer surplus is PS. Producing more turkeys than the equilibrium
quantity would lower total surplus because the value to the marginal buyer would be lower
than the cost to the marginal seller on those additional units.
Questions for Review
1. The price a buyer is willing to pay, consumer surplus, and the demand curve are all closely
related. The height of the demand curve represents the willingness to pay of the buyers.
Consumer surplus is the area below the demand curve and above the price, which equals the
price that each buyer is willing to pay minus the price actually paid.
2. Sellers' costs, producer surplus, and the supply curve are all closely related. The height of the
supply curve represents the costs of the sellers. Producer surplus is the area below the price
and above the supply curve, which equals the price received minus each seller's costs of
producing the good.
Figure 4
132 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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3. Figure 4 shows producer and consumer surplus in a supply-and-demand diagram.
4. An allocation of resources is efficient if it maximizes total surplus, the sum of consumer
surplus and producer surplus. But efficiency may not be the only goal of economic
policymakers; they may also be concerned about equality⎯the uniform distribution of
economic prosperity among the members of society.
5. Two types of market failure are market power and externalities. Market power may cause
market outcomes to be inefficient because firms may cause price and quantity to differ from
the levels they would be under perfect competition, which keeps total surplus from being
maximized. Externalities are side effects that are not taken into account by buyers and
sellers. As a result, the free market does not maximize total surplus.
Quick Check Multiple Choice
1. a
2. a
3. b
4. c
5. b
6. c
Problems and Applications
1. a. Consumer surplus is equal to willingness to pay minus the price paid. Therefore,
Melissa’s willingness to pay must be $200 ($120 + $80).
b. Her consumer surplus at a price of $90 would be $200 − $90 = $110.
c. If the price of an iPhone was $250, Melissa would not have purchased one because the
price is greater than her willingness to pay. Therefore, she would receive no consumer
surplus.
2. If an early freeze in California sours the lemon crop, the supply curve for lemons shifts to the
left, as shown in Figure 5. The result is a rise in the price of lemons and a decline in
consumer surplus from A + B + C to just A. So consumer surplus declines by the amount B +
C.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 133
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Figure 5 Figure 6
In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as
shown in Figure 6. The result is an increase in the price of lemonade and a decline in
consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects
consumer surplus in one market often has effects on consumer surplus in other markets.
3. A rise in the demand for French bread leads to an increase in producer surplus in the market
for French bread, as shown in Figure 7. The shift of the demand curve leads to an increased
price, which increases producer surplus from area A to area A + B + C.
Figure 7
The increased quantity of French bread being sold increases the demand for flour, as shown
in Figure 8. As a result, the price of flour rises, increasing producer surplus from area D to D
+ E + F. Note that an event that affects producer surplus in one market leads to effects on
producer surplus in related markets.
134 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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Figure 8
4. a. Bert’s demand schedule is:
Price Quantity Demanded
More than $7 0
$5 to $7 1
$3 to $5 2
$1 to $3 3
$1 or less 4
Bert’s demand curve is shown in Figure 9.
Figure 9
b. When the price of each bottle of water is $4, Bert buys two bottles of water. His
consumer surplus is shown as area A in the figure. He values his first bottle of water at
$7, but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 135
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total
consumer surplus is $3 + $1 = $4, which is the area of A in the figure.
c. When the price of each bottle of water falls from $4 to $2, Bert buys three bottles of
water, an increase of one. His consumer surplus consists of both areas A and B in the
figure, an increase in the amount of area B. He gets consumer surplus of $5 from the
first bottle ($7 value minus $2 price), $3 from the second bottle ($5 value minus $2
price), and $1 from the third bottle ($3 value minus $2 price), for a total consumer
surplus of $9. Thus consumer surplus rises by $5 (which is the size of area B) when the
price of each bottle of water falls from $4 to $2.
5. a. Ernie’s supply schedule for water is:
Price Quantity Supplied
More than $7 4
$5 to $7 3
$3 to $5 2
$1 to $3 1
Less than $1 0
Ernie’s supply curve is shown in Figure 10.
Figure 10
b. When the price of each bottle of water is $4, Ernie sells two bottles of water. His
producer surplus is shown as area A in the figure. He receives $4 for his first bottle of
water, but it costs only $1 to produce, so Ernie has producer surplus of $3. He also
receives $4 for his second bottle of water, which costs $3 to produce, so he has producer
surplus of $1. Thus Ernie’s total producer surplus is $3 + $1 = $4, which is the area of A
in the figure.
c. When the price of each bottle of water rises from $4 to $6, Ernie sells three bottles of
water, an increase of one. His producer surplus consists of both areas A and B in the
figure, an increase by the amount of area B. He gets producer surplus of $5 from the
first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price minus $3 cost),
and $1 from the third bottle ($6 price minus $5 price), for a total producer surplus of $9.
136 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
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Thus producer surplus rises by $5 (which is the size of area B) when the price of each
bottle of water rises from $4 to $6.
6. a. From Ernie’s supply schedule and Bert’s demand schedule, the quantity demanded and
supplied are:
Price Quantity Supplied Quantity Demanded
$2 1 3
$4 2 2
$6 3 1
Only a price of $4 brings supply and demand into equilibrium, with an equilibrium
quantity of two.
b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shown in
Problems 3 and 4 above. Total surplus is $4 + $4 = $8.
c. If Ernie produced one less bottle, his producer surplus would decline to $3, as shown in
Problem 4 above. If Bert consumed one less bottle, his consumer surplus would decline
to $3, as shown in Problem 3 above. So total surplus would decline to $3 + $3 = $6.
d. If Ernie produced one additional bottle of water, his cost would be $5, but the price is
only $4, so his producer surplus would decline by $1. If Bert consumed one additional
bottle of water, his value would be $3, but the price is $4, so his consumer surplus would
decline by $1. So total surplus declines by $1 + $1 = $2.
7. a. The effect of falling production costs in the market for flat-screen TVs results in a shift to
the right in the supply curve, as shown in Figure 11. As a result, the equilibrium price of
flat-screen TVs declines and the equilibrium quantity increases.
Figure 11
b. The decline in the price of flat-screen TVs increases consumer surplus from area A to A +
B + C + D, an increase in the amount B + C + D. Prior to the shift in supply, producer
surplus was areas B + E (the area above the supply curve and below the price). After the
shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the
amount F + G – B, which may be positive or negative. The increase in quantity increases
Price of flat-screen
TVs
Quantity of flat-screen TVs
Demand
S2
S1
P1
P2
Q1 Q2
E
A
B
F
C
G
D
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 137
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producer surplus, while the decline in the price reduces producer surplus. Because
consumer surplus rises by B + C + D and producer surplus rises by F + G – B, total
surplus rises by C + D + F + G.
c. If the supply of flat-screen TVs is very elastic, then the shift of the supply curve benefits
consumers most. To take the most dramatic case, suppose the supply curve were
horizontal, as shown in Figure 12. Then there is no producer surplus at all. Consumers
capture all the benefits of falling production costs, with consumer surplus rising from
area A to area A + B.
Figure 12
8. Figure 13 shows supply and demand curves for haircuts. Supply equals demand at a quantity
of three haircuts and a price between $4 and $5. Firms A, C, and D should cut the hair of
Claire, Gloria, and Phil. Jay’s willingness to pay is too low and firm B’s costs are too high, so
they do not participate. The maximum total surplus is the area between the demand and
supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value
minus $3 cost for the second, plus $5 value minus $4 cost for the third).
Figure 13
1 2 3 4
1
2
3
4
5
6
7
8
Quantity of Haircuts
Price of Haircuts
Claire
Gloria
Phil
Jay
D
A
C
B
A
B
S1
S2
Demand
Quantity of flat-screen TVs
Price of flat-screen TVs
138 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
9. a. The effect of falling production costs in the market for computers resulted in a shift to
the right in the supply curve, as shown in Figure 14. As a result, the equilibrium price of
computers declined and the equilibrium quantity increased. The decline in the price of
computers increased consumer surplus from area A to A + B + C + D, an increase in the
amount B + C + D.
Figure 14 Figure 15
Prior to the shift in supply, producer surplus was areas B + E (the area above the supply
curve and below the price). After the shift in supply, producer surplus is areas E + F + G.
So producer surplus changes by the amount F + G – B, which may be positive or
negative. The increase in quantity increases producer surplus, while the decline in the
price reduces producer surplus. Because consumer surplus rises by B + C + D and
producer surplus rises by F + G – B, total surplus rises by C + D + F + G.
b. Typewriters and computers are substitutes. The decline in the price of computers means
that people substituted computers for typewriters, shifting the demand for typewriters to
the left, as shown in Figure 15. The result is a decline in both the equilibrium price and
equilibrium quantity of typewriters. Consumer surplus in the typewriter market changes
from area A + B to A + C, a net change of C – B. Producer surplus changes from area C
+ D + E to area E, a net loss of C + D. Typewriter producers are sad about technological
advances in computers because their producer surplus declines.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 139
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c. Software and computers are complements. When the price of computers decreases, the
demand for software increases. The demand for software shifts to the right, as shown in
Figure 16. The result is an increase in both the price and quantity of software. Consumer
surplus in the software market changes from B + C to A + B, a net change of A – C.
Producer surplus changes from E to C + D + E, an increase of C + D, so software
producers should be happy about the technological progress in computers.
Figure 16
d. Yes, this analysis helps explain why Bill Gates is one the world’s richest people. His
company produces a lot of software and the producer surplus in the software market
increased with the technological advance in computers.
10. a. With Provider A, the cost of an extra minute is $0. With Provider B, the cost of an extra
minute is $1.
b. With Provider A, my friend will purchase 150 minutes [= 150 – (50)(0)]. With Provider B,
my friend would purchase 100 minutes [= 150 – (50)(1)].
c. With Provider A, she would pay $120. With Provider B, he would pay $100.
140 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 17
d. Figure 17 shows the friend’s demand. With Provider A, she buys 150 minutes and her
consumer surplus is equal to (1/2)(3)(150) – 120 = 105. With Provider B, her consumer
surplus is equal to (1/2)(2)(100) = 100.
e. I would recommend Provider A because she receives greater consumer surplus when
buying from that provider.
11. a. Figure 18 illustrates the demand for medical care. If each procedure has a price of $100,
quantity demanded will be Q1 procedures.
Figure 18
b. If consumers pay only $20 per procedure, the quantity demanded will be Q2 procedures.
Because the cost to society is $100, the number of procedures performed is too large to
maximize total surplus. The quantity that maximizes total surplus is Q1 procedures, which
is less than Q2.
Chapter 7/Consumers, Producers, and the Efficiency of Markets ❖ 141
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c. The use of medical care is excessive in the sense that consumers get procedures whose
value is less than the cost of producing them. As a result, the economy’s total surplus is
reduced.
d. To prevent this excessive use, the consumer must bear the marginal cost of the
procedure. But this would require eliminating insurance. Another possibility would be that
the insurance company, which pays most of the marginal cost of the procedure ($80, in
this case) could decide whether the procedure should be performed. But the insurance
company does not get the benefits of the procedure, so its decisions may not reflect the
value to the consumer.
Exploring the Variety of Random
Documents with Different Content
INTRUSION
The lilies sag with rain-drops:
Their petals hold fire that does not break out.
(As though it slept between vapor-silk
It could not burn).
And a young breeze stumbles upon the lilies
And strokes them with his spinning hands....
The lilies and the young breeze are not unlike
Your silence and the rush of soft words breaking it.
CHANGE
I came upon a maiden
Blowing rose petals in the air
And catching them, as they fell,
Upon quick fingertips
Her laugh fell lighter than the petals
And dropped little gestures upon my forehead.
I gave her sadness and she blew it up
As she had blown the rose petals:
And it almost seemed joy as her fingers caught it.
But I was only a wanderer plaited with dust,
Who gave her new petals to play with.
PORTRAITS
I
You were in the room, yet your body
Was stone cut in drooping lines
And hued with decorous puzzling pinks and browns.
Even your hair seemed an elfin wig
Carelessly thrown upon your stone head.
And your eyes were hollows cradling broken shadows.
When you spoke your body did not change:
It was as though a flock of sleepy birds
Had issued from your stone mouth.
II
Vague words tapered off to pale weariness,
And sunlight was night smiling in his sleep.
Your hands moved as though they sought a dying emotion:
Your lips, drawn back, seemed evading sound.
When twilight fell upon us,
Like night striving to forget his dream,
We had long since passed out of the room.
MEETING
A mood whose heart was a flagon of ashes,
Met another mood whose lips were stained
With the odors of sleeping wine-songs.
The second mood kissed the breast of the first
And filled the ashen flagon with his pale purple breath.
Then the two moods died, and he who bore them,
Being an old man, sat down to make others.
COTTON-PICKER
Like the arms of a child lifting shining white lilies from a little brown pond,
Sunlight drew songs from this lithe, grimacing negress
Whose skin was smoother than the cloudless sky above her.
The flecks of cotton they picked brought a changing white stupor
To the negroes about her, but she swung down her row,
With broad smiles cutting her pent-up satin face.
And though the afternoon slowly pressed down her back,
She never ceased humming to her joyous Christ.
FRIENDSHIP
Grey, drooping-shouldered bushes scrape the edges
Of bending swirls of yellow-white flowers.
So do my thoughts meet the wind-scattered color of you.
A green-shadowed trance of water
Is splintered to little, white tasseled awakenings
By the beat of long, black oars.
So do my thoughts enter yours.
Split, brown-blue clouds press into each other
Over hills dressed in mute, clinging haze.
So do my thoughts slowly form
Over the draped mystery of you.
FACTORY GIRL
Why are your eyes like dry brown flower-pods,
Still, gripped by the memory of lost petals?
I feel that if I touched them
They would crumble to falling brown dust
And you would stand with blindness revealed.
Yet, you would not shrink, for your life
Has been long since memorized,
And eyes would only melt out against its high walls.
Besides, in the making of boxes
Sprinkled with crude forget-me-nots,
One is curiously blessed if ones eyes are dead.
DEATH
I
A fan of smoke in the long, green-white revery of the sky,
Slowly curls apart.
So shall we rise and widen out in the silence of air.
II
An old man runs down a little yellow road
To an out-flung, white thicket uncovered by morning.
So shall I swing to the white sharpness of death.
INTERLUDE
Sun-light recedes on the mountains, in long gold shafts,
Like the falling pillars of a temple.
Then singing silence almost too nimble for ears:
The mountain-tenors fling their broad voices
Into the blue hall of the sky,
And through a rigid column of these voices
Night dumbly walks.
Night, crushing sound between his fingers
Until it forms a lightly frozen couch
On which he dreams.
CHORUS GIRL
Her voice was like rose-fragrance waltzing in the wind.
She seemed a shadow stained with shadow colors
Swinging through waves of sunlight.
Perhaps her heart was an old minstrel
Sleepily pawing at his little mandolin.
OLD AGE
In me is a little painted square
Bordered by old shops, with gaudy awnings.
And before the shops sit smoking, open-bloused old men,
Drinking sunlight.
The old men are my thoughts:
And I come to them each evening, in a creaking cart,
And quietly unload supplies.
We fill slim pipes and chat,
And inhale scents from pale flowers in the center of the square....
Strong men, tinkling women, and dripping, squealing children
Stroll past us, or into the shops.
They greet the shopkeepers, and touch their hats or foreheads to me....
Some evening I shall not return to my people.
TO ONE DEAD
I walked upon a hill
And the wind, made solemnly drunk with your presence,
Reeled against me.
I stooped to question a flower,
And you floated between my fingers and the petals,
Tying them together.
I severed a leaf from its tree
And a water-drop in the green flagon
Cupped a hunted bit of your smile.
All things about me were steeped in your remembrance
And shivering as they tried to tell me of it.
TO A DISCARDED STEEL RAIL
Straight strength pitched into the surliness of the ditch:
A soul you have—strength has always delicate, secret reasons.
Your soul is a dull question.
I do not care for your strength, but your stiff smile at Time:
A smile which men call rust.
TO AN ENEMY
I despise my friends more than you.
I would have known myself but they stood before the mirrors
And painted on them images of the virtues I craved.
You came with sharpest chisel, scraping away the false paint.
Then I knew and detested myself, but not you,
For glimpses of you in the glasses you uncovered
Showed me the virtues whose images you destroyed.
SOLDIERS
The smile of one face is like a fierce mermaid
Floating dead in a little pale-brown pond.
The lips of one are twisted
To a hieroglyphic of silence.
The face of another is like a shining frog.
Another face is met by a question
That digs into it like sudden claws.
Beside it is a face like a mirror
In which a stiffened child dangles....
Dead soldiers, in a sprawling crescent,
Whose faces form a gravely mocking sentence.
FORGETFULNESS
Happier than green-kirtled apple-trees
Waving their soft-rimmed fans of light
And taking the morning mist, in quick breaths,
You sit in the woven meditation and surprise
Of a morning uncovering its wind-wreathed head.
And yet within the light stillness of your soul
Dream-heavy guards sleep uneasily
Over the body of your last slain sorrow.
THE INTERNE
O the agony of having too much power!
In my passive palm are hundreds of lives.
Strange alchemy, they drain my blood.
My heart becomes iron; my brain copper; my eyes silver; my lips brass.
Merely by twitching a supple finger, I twirl lives from me,
Strong-winged or fluttering and broken.
They are my children: I am their mother and father.
I watch them live and die.
REAR PORCHES OF AN APARTMENT BUILDING
A sky that has never known sun, moon, or stars,
A sky that is like a dead, kind face
Would have the color of your eyes,
O servant-girl singing of pear-trees in the sun
And scraping the yellow fruit you once picked
When your lavender-white eyes were alive.
On the porch above you sit two women
With faces the color of dry brown earth;
They knit grey rosettes and nibble cakes.
And on the porch above them are three children
Gravely kissing each other’s foreheads,
And an ample nurse with a huge red fan....
The death of the afternoon to them
Is but the lengthening of blue-black shadows on brick walls.
TO ONE DEAD
Shaking nights, noons tame and dust-quiet, and wind-broken days
Were hands modelling your face.
Yet people glanced at you and pass on.
And now they speak of you,
Quickly weighing tiny, stray chips of you:
They who did not know you.
THE MASTER-POISONER
Maxwell Bodenheim and Ben Hecht
People
Sobe The Poisoner
Fana His Wife
Maldor His Assistant
The Poisoner’s living-room. Purple velvet draperies embroidered with
huge lavendar and orange lilies hang over the rear wall, completely
covering it. One great scarlet cushion, four feet high and five feet wide,
stands at the center of the wall against the draperies. The right and left
walls have two small, narrow windows near the top, through which a dimly
glowing light pours, forming a triangle as it strikes the floor. A narrow tall
entrance blocked by orange-colored portieres stands in the center of the
right and left walls. The floor is black and uncovered. A huge black candle
three inches wide and five feet high emerges from a black urn in the center
of the floor, bisecting the triangle formed by the two streams of pale light.
White and scarlet cushions are scattered about the floor. On two of these
cushions sit Sobe, the Poisoner, and Maldor, his Assistant. They sit to the
left and right of the candle, eyeing each other with a softly-smiling
melancholy. Sobe is tall, black-bearded, condor-faced, and clad in an
orange robe, and black sandals. Maldor is short and smooth-shaven, with
the face of a sleepy girl. He wears a white robe and sandals.
Maldor (puzzled and wistful, speaks softly to the Poisoner)
A secretion from the intestines of the cane-rat found in the Hwang-Ho river,
sprinkled with the pollen of jasmine-flowers, produces a most wonderful
poison, O Master. When dropped into the eyes of a virgin, this poison will
cause her face to contract in a twitching crescendo.
Sobe (speaks listlessly)
The eyes of a virgin are too blank for a poisoner’s relish.
Maldor (speaks with eager, hopeful emphasis)
The virgin, O Master, provides only the unimportant tinge to the process.
The relish lies in the pompous complexity of the poison.
Sobe
Complexity is but a shattered mirror.
Maldor (still hopefully)
From the irridescent dimples of the Medusae fish I have extracted a saffron
liquid, O master, which mixed with the larvae of dragon-flies, completes a
most satisfactory poison. Administered in microscopic doses, it creates
ribbons of flame in the blood and its enchanting victim expires, glowing
with strange, phosphorescent colors.
Sobe
I am sick of suavely terrifying poisons.
Maldor (speaks wistfully)
What strange delicacy makes you almost brutal tonight, O Master?
Sobe (speaks as to himself)
Wearisome poisons. A droll flutter ... and then always that dainty monotony
—death.
Maldor (speaks swiftly)
But surely our work still holds you, O Master. You have not become
reconciled to the empty ferocity of death!
Sobe (speaks gently)
Ah, Maldor, our poisons lend their little flourishes merely to life. I would
like to poison death.
Maldor (speaks aggrievedly)
But master, those cringing writhings, those indelicate squirmings and
jocund acrobatics which our most fastidious poisons produce—what more
tender satisfaction!
Sobe (listlessly)
They are but interludes leaving me languidly envious of death, my master.
Maldor (speaks with indignation)
You have no master! Your last poison of moth-blood produced an effect so
exquisitely monstrous that even death was appalled. Ah, the bones of an old
woman, dissolving within her, left her body, a loose grimace.
Sobe
I am sick of all these sterile grimaces.
Maldor (speaks slowly)
Some new and lethal poem has sighed itself into your heart.
Sobe (softly)
There are no poisons remaining. We have signalled death with many
diverting gestures. We have fitted too many clownish shrouds.
Maldor
You are wistfully nervous. Some dream has burned your heart to an ashen
bag.
Sobe
I will tell you, Maldor, what I have done.
Maldor
Surely, you have found no last contortion for life.
Sobe
I have found the ultimate contortion.
Maldor
Some nibbling horror....
Sobe
No, Beauty.
Maldor (after a pause)
Beware, master, beauty is life’s revenge upon death.
Sobe
You know very little. Beauty is the devourer of death.
Maldor (speaks slowly)
What poison is this?
Sobe (speaks gently)
A drop taken into the blood, no more. The skin becomes a milk-tinted pond
in which wine-ghosts timidly bathe. The eyes, like purple breasted birds,
beat against the day. The mouth blooms into splendours. Ah, Maldor, the
drop releases beauty from her thousand prisons. The victim stands washed
in a flood of light before which imagination dies.
Maldor (speaks maliciously)
What unique philanthropy is this? Has Sobe the Poisoner dreamed of
immortality?
Sobe (gently)
Sobe the Poisoner has made a drop of poison which will create beauty and
death. In the soul of its victim these two monsters meet and strive against
each other. Immortal beauty and death remain clutched in a stifling caress.
The poison, as it works upon its victim, renders her more radiant and
beautiful each moment, and each moment it paralyses her heart.
Maldor
And then what happens?
Sobe
Bereft of life, but with a beauty which must resist death, the tortured one
remains my own. Thus with my poison I become death’s master. Thus that
which should die, does not die. Thus death advancing creates a flame which
it cannot stifle.
Maldor
Beware.
Sobe (speaks with quickened emphasis)
Death is my slave. I summon him. I open a jewelled gate which he cannot
pass.
Maldor (speaks softly)
I do not like this poison.
Sobe (who smiles)
You are an amateur of death, Maldor.
Maldor (softly)
I do not like this poison.
Sobe
I will tell you another virtue of this poison, which perhaps will entice your
fears.
Maldor
What is this virtue?
Sobe
Other poisons I have made provided us only with that little frenzied prelude
to death. Our victims have amused us somewhat, with unconscious
heavings—little, docile marionettes in the torments of poisons. But now,
Maldor, our subject, inspired by the ever-increasing loveliness of her body,
by the ever-growing flame of her beauty, resists in a torment beyond those
instinctive spasms and dimly-felt agonies. Her overwhelming desire to
prolong her beauty makes the struggle against death wondrously hideous.
Maldor
But since you say she cannot die, where will those struggles lead her?
Sobe
I do not know. I know only that a woman whose beauty feeds upon the
shadows of death, must amuse us with a miracle.
Maldor (softly)
The virtue of this poison does not appeal to me. The miracle you promise is
cluttered with subtle doubts. Death, betrayed, may blindly wander. Let us
rather return to our pathetically certain poisons and revel in the final froth-
sprinkled caperings of life. Ah, the powdered hair of the white caterpillar,
steeped in moon-light, will cause the eyes to swell out of their sockets, and
the tongue to burst.
Sobe (gently)
Where is Fana?
Maldor
Fana!
Sobe
Summon Fana to me.
Maldor
Master, do not summon Fana.
Sobe
I shall make Fana beautiful.
(Fana draws aside the portieres at the left. Fana is tall, with a
majestic ugliness. She is dressed in a dark brown robe. Her face is
swathed in a pale brown veil, knotted at the nape of the neck, and
falling almost to her feet. She stands motionless. The two men turn and
stare at her.)
Sobe (softly)
I shall bring the poison.
(He rises and departs through the right entrance. Maldor rises and
continues to look steadily at Fana.)
Fana (gently)
I heard the word beauty.
Maldor
What else did you hear?
Fana
I heard only the word beauty.
Maldor
The master is evil tonight.
Fana
More evil than always?
Maldor
Even more.
Fana
What does he do?
Maldor
He frightens me with a mockery of death.
Fana
What did he say of beauty?
Maldor
Fana, go before he returns.
(Maldor quickly walks to the right entrance, draws aside the
portieres, and peers cautiously out. He returns quickly to Fana.)
Maldor (speaking quickly)
He has a poison to make you beautiful.
Fana
Ah!
Maldor
Go!
Fana
Is he weary of my ugliness?
Maldor
No. He has no thought for you. He seeks to enslave his master, Death.
Fana
But I did hear him speak of beauty.
Maldor (desperately)
He means to make you the flowered tomb of beauty. I can tell you no more.
Go!
Fana
Why do you tell me this? I have seen you smile upon things less subtle than
tombs.
Maldor
I love you.
Fana
It is easy to love that which is veiled. But perhaps you love me because my
face is so gentle a poison.
Maldor
I know not ugliness. It is a mood which has forsaken me. I plead with you
to go.
(Maldor hears Sobe’s footfalls and seats himself impassively upon
his cushion.)
Fana (softly)
I shall remain.
(Sobe enters. He bows to Fana.)
Sobe
Ah, Fana, I shall make your stay pleasant.
Fana—
Yes, Master.
(She seats herself behind the candle between Sobe and Maldor.)
Sobe (gently)—
You are very ugly, Fana. You wear a veil because you are ugly.
Fana—
I heard you speak of beauty.
Sobe—
Your body is like a broken cloud. Your face is like a pottery that crumbles in
the light. You are not beautiful.
Fana (softly)—
Why do you tell me this so carefully?
Sobe—
To make you dream.
Fana—
Dreams are mirrors in which I do not care to look.
Sobe—
I have a poison that will open your hearts to dreams.
Fana—
The dream which poison brings is too long.
Sobe—
This poison brings two dreams. One of beauty and one of death. Would you
listen to them?
Fana—
Listening to dreams one avoids the dreariness of sleep.
Sobe (gently)—
You are very ugly, Fana. I have a poison which will make you beautiful.
Fana—
To lie beautiful in death is a lyric privilege, but so faint an echo.
Sobe—
You reason too simply. I cannot promise you life. Perhaps your pleasure
will be only that of one who greets a phantom lover. A moment of
loveliness and the thought of eternal beauty embalmed in a dark dream,
may be all that shall be given to you before death.
Fana
And what else is possible?
Sobe
It is possible that you will become so beautiful that you cannot die. It is
possible that Death, feeding your beauty, will exhaust itself in a last gentle
caress. Then you will still live, and Death, a eunuch, will drag himself after
you.
Fana
But why do you speak so eagerly? Surely your only interest does not lie in
my exchanging one veil for another.
Maldor (breaking his silence softly)
No, Fana, my master dreams of edged subtleties.
Sobe
Make them simple with your telling, Maldor.
Maldor
My master is weary of ordinary effects. He has watched too many frenzied
struggles. No longer do they intrigue him. He yearns for something
elaborate. He has dreamed of more fragile tortures. The poison he will give
you brings no pain, but the beauty it creates within you will sharpen to
madness your desire to live, and my master will sit and look into your eyes.
Sobe
Have you finished, Maldor?
Maldor
Yes.
Sobe (gently)
I desire another assistant, Fana. As you see, one who will serve me more
faithfully, and whose loves are not so obvious. I will tell you why I am so
eager. I wish simply to master death.
Fana
Have you the poison?
Sobe
Here.
(He takes from his robe a small flagon and hands it to her.)
Sobe
I have hidden the drop in wine.
(Fana rises and lifts her veil from her mouth. She drinks, smiling at
Maldor, who sits and stares impassively ahead of him. Sobe rises and
moves to the back of the room, watching her.)
Fana
I have drunk.
Sobe (softly)
Unveil yourself.
(Fana unveils herself.)
Sobe
Ah!
(He draws aside a panel portiere in the rear draperies, and a long
narrow mirror is revealed.)
Sobe
Look.
Fana
Ah!
Sobe (gazing at her intently)
You are beautiful.
Fana (whispering)
I grow more beautiful.
Sobe (he speaks as if growing dazed)
Your eyes....
Fana
My eyes are like madly swinging torches.
Sobe
Your mouth....
Fana
My mouth is like the little red door to a palace.
Sobe
Your hair....
Fana (eyeing the mirror still)

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  • 4.
    121 © 2012 CengageLearning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. rkets WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on "The Invisible Hand Can Park Your Car." LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the link between buyers’ willingness to pay for a good and the demand curve. ➢ how to define and measure consumer surplus. ➢ the link between sellers’ costs of producing a good and the supply curve. ➢ how to define and measure producer surplus. ➢ that the equilibrium of supply and demand maximizes total surplus in a market. CONTEXT AND PURPOSE: Chapter 7 is the first chapter in a three-chapter sequence on welfare economics and market efficiency. Chapter 7 employs the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. These concepts are then utilized in Chapters 8 and 9 to determine the winners and losers from taxation and restrictions on international trade. The purpose of Chapter 7 is to develop welfare economics—the study of how the allocation of resources affects economic well-being. Chapters 4 through 6 employed supply and demand in a positive framework, which focused on the question, “What is the equilibrium price and quantity in a market?” This chapter now addresses the normative question, “Is the equilibrium price and quantity in a market the best possible solution to the resource allocation problem, or is it simply the price and quantity that balance supply and demand?” Students will discover that under most circumstances the equilibrium price and quantity is also the one that maximizes welfare. 7 CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS
  • 5.
    122 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. KEY POINTS: • Consumer surplus equals buyers’ willingness to pay for a good minus the amount they actually pay, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price. • Producer surplus equals the amount sellers receive for their goods minus their costs of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be computed by finding the area below the price and above the supply curve. • An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient. Policymakers are often concerned with the efficiency, as well as the equality, of economic outcomes. • The equilibrium of supply and demand maximizes the sum of consumer and producer surplus. That is, the invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently. • Markets do not allocate resources efficiently in the presence of market failures such as market power or externalities. CHAPTER OUTLINE: I. Definition of welfare economics: the study of how the allocation of resources affects economic well-being. II. Consumer Surplus A. Willingness to Pay 1. Definition of willingness to pay: the maximum amount that a buyer will pay for a good. 2. Example: You are auctioning a mint-condition recording of Elvis Presley’s first album. Four buyers show up. Their willingness to pay is as follows: Buyer Willingness to Pay John $100 Paul $80 George $70 Ringo $50 Table 1 Students often are confused by the use of the word “welfare.” Remind them that we are talking about social well-being and not public assistance. Students will understand consumer surplus if you take the time to work through the Elvis Presley example. If you start with this simple example, students will have no trouble understanding how to find consumer surplus on a graph.
  • 6.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 123 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If the bidding goes to slightly higher than $80, all buyers drop out except for John. Because John is willing to pay more than he has to for the album, he derives some benefit from participating in the market. 3. Definition of consumer surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. 4. Note that if you had more than one copy of the album, the price in the auction would end up being lower (a little over $70 in the case of two albums) and both John and Paul would gain consumer surplus. Activity 1—Value of a Time Machine Type: In-class demonstration Topics: Consumer surplus Materials needed: None Time: 10 minutes Class limitations: Works in any size class Purpose Consumer surplus can be a hard concept for students because it is based on avoided expense rather than on money that is actually exchanged. This example puts a specific dollar value on consumer surplus. Instructions Tell the class, “A new technology has been developed that allows individuals to travel backward or forward in time. We want to identify the value this time machine provides to consumers. Let’s assume the four consumers who most desire this product are in this class.” Choose four student names and use them in the following example: “Scott is the consumer who most values this product. He wants to go back to the time of the dinosaurs. He is willing to pay $3,000.” “Carol is the consumer with the next highest willingness to pay. She would like to see 200 years in the future. She’d pay $2,500.” “Steve is the next highest bidder. He’d like to relive this entire semester. He’ll pay up to $800.” “Jeanne is our fourth consumer. She’d pay $200 to move the clock forward to the end of this class period.” On the board write: Scott $3,000 Carol $2,500 Steve $800 Jeanne $200
  • 7.
    124 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. B. Using the Demand Curve to Measure Consumer Surplus 1. We can use the information on willingness to pay to derive a demand curve for the rare Elvis Presley album. Price Buyers Quantity Demanded More than $100 None 0 $80 to $100 John 1 $70 to $80 John, Paul 2 $50 to $70 John, Paul, George 3 $50 or less John, Paul, George, Ringo 4 2. At any given quantity, the price given by the demand curve reflects the willingness to pay of the marginal buyer. Because the demand curve shows the buyers’ willingness to pay, we can use the demand curve to measure consumer surplus. 3. Consumer surplus can be measured as the area below the demand curve and above the price. C. How a Lower Price Raises Consumer Surplus Figure 1 Figure 2 Figure 3 “This represents the demand curve for the time machine. Consumer surplus is the difference between what consumers are willing to pay and the amount they actually have to pay. The market price will determine who uses the time machine and how much surplus they keep.” “If the price of a time machine ride was $500, three rides would be sold—one to Scott, one to Carol, and one to Steve. Jeanne is not willing to pay $500, so she wouldn’t time travel.” “We can calculate the consumer surplus of three time trips. Scott would pay $3,000 but only pays $500, leaving $2,500 of net benefits.” (Put these numbers on the board.) “Carol has net benefits of $2,000. Steve has $300 in net benefits. Adding up these net savings gives $4,800 in consumer surplus.” Points for Discussion The consumer surplus depends on a good’s selling price and the number of consumers who are willing to purchase the good at that price. The lower the price, the greater the consumer surplus. Quantity 80 Price of Album 1 2 3 4 0 100 70 50 Demand
  • 8.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 125 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1. As price falls, consumer surplus increases for two reasons. a. Those already buying the product will receive additional consumer surplus because they are paying less for the product than before (area A on the graph). b. Because the price is now lower, some new buyers will enter the market and receive consumer surplus on these additional units of output purchased (area B on the graph). D. What Does Consumer Surplus Measure? 1. Remember that consumer surplus is the difference between the amount that buyers are willing to pay for a good and the price that they actually pay. 2. Thus, it measures the benefit that consumers receive from the good as the buyers themselves perceive it. III. Producer Surplus A. Cost and the Willingness to Sell 1. Definition of cost: the value of everything a seller must give up to produce a good. ALTERNATIVE CLASSROOM EXAMPLE: Review the material on price ceilings from Chapter 6. Redraw the market for two-bedroom apartments in your town. Draw in a price ceiling below the equilibrium price. Then go through: ▪ consumer surplus before the price ceiling is put into place. ▪ consumer surplus after the price ceiling is put into place. It is important to stress that consumer surplus is measured in monetary terms. Consumer surplus gives us a way to place a monetary cost on inefficient market outcomes (due to government involvement or market failure).
  • 9.
    126 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2. Example: You want to hire someone to paint your house. You accept bids for the work from four sellers. Each painter is willing to work if the price you will pay exceeds her opportunity cost. (Note that this opportunity cost thus represents willingness to sell.) The costs are: Seller Cost Mary $900 Frida $800 Georgia $600 Grandma $500 3. Bidding will stop when the price gets to be slightly below $600. All sellers will drop out except for Grandma. Because Grandma receives more than she would require to paint the house, she derives some benefit from producing in the market. 4. Definition of producer surplus: the amount a seller is paid for a good minus the seller’s cost of providing it. 5. Note that if you had more than one house to paint, the price in the auction would end up being higher (a little under $800 in the case of two houses) and both Grandma and Georgia would gain producer surplus. B. Using the Supply Curve to Measure Producer Surplus 1. We can use the information on cost (willingness to sell) to derive a supply curve for house painting services. Price Sellers Quantity Supplied $900 or more Mary, Frida, Georgia, Grandma 4 $800 to $900 Frida, Georgia, Grandma 3 $600 to $800 Georgia, Grandma 2 $500 to $600 Grandma 1 less than $500 None 0 2. At any given quantity, the price given by the supply curve represents the cost of the marginal seller. Because the supply curve shows the sellers’ cost (willingness to sell), we can use the supply curve to measure producer surplus. 3. Producer surplus can be measured as the area above the supply curve and below the price. Table 2 Figure 4 You will need to take some time to explain the relationship between the producers’ willingness to sell and the cost of producing the good. The relationship between cost and the supply curve is not as apparent as the relationship between the demand curve and willingness to pay. Figure 5 Price of House Painting 1 2 3 4 0 900 800 500 600 Supply Quantity
  • 10.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 127 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C. How a Higher Price Raises Producer Surplus 1. As price rises, producer surplus increases for two reasons. a. Those already selling the product will receive additional producer surplus because they are receiving more for the product than before (area C on the graph). b. Because the price is now higher, some new sellers will enter the market and receive producer surplus on these additional units of output sold (area D on the graph). D. Producer surplus is used to measure the economic well-being of producers, much like consumer surplus is used to measure the economic well-being of consumers. IV. Market Efficiency A. The Benevolent Social Planner 1. The economic well-being of everyone in society can be measured by total surplus, which is the sum of consumer surplus and producer surplus: Total Surplus = Consumer Surplus + Producer Surplus Total Surplus = (Value to Buyers – Amount Paid by Buyers) + (Amount Received by Sellers – Cost to Sellers) Figure 6 ALTERNATIVE CLASSROOM EXAMPLE: Review the material on price floors from Chapter 6. Redraw the market for an agricultural product such as corn. Draw in a price support above the equilibrium price. Then go through: ▪ producer surplus before the price support is put in place. ▪ producer surplus after the price support is put in place. Make sure that you discuss the cost of the price support to taxpayers.
  • 11.
    128 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Because the Amount Paid by Buyers = Amount Received by Sellers: 2. Definition of efficiency: the property of a resource allocation of maximizing the total surplus received by all members of society. 3. Definition of equality: the property of distributing economic prosperity uniformly the members of society. B. Evaluating the Market Equilibrium 1. At the market equilibrium price: a. Buyers who value the product more than the equilibrium price will purchase the product; those who do not, will not purchase the product. In other words, the free market allocates the supply of a good to the buyers who value it most highly, as measured by their willingness to pay. b. Sellers whose costs are lower than the equilibrium price will produce the product; those whose costs are higher, will not produce the product. In other words, the free market allocates the demand for goods to the sellers who can produce it at the lowest cost. 2. Total surplus is maximized at the market equilibrium. Total Surplus = Value to Buyers Cost to Sellers − Figure 7 Now might be a good time to point out that many government policies involve a trade-off between efficiency and equity. When you evaluate government policies, like price ceilings or floors, you can explain them in terms of equity and efficiency.
  • 12.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 129 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. a. At any quantity of output smaller than the equilibrium quantity, the value of the product to the marginal buyer is greater than the cost to the marginal seller so total surplus would rise if output increases. b. At any quantity of output greater than the equilibrium quantity, the value of the product to the marginal buyer is less than the cost to the marginal seller so total surplus would rise if output decreases. 3. Note that this is one of the reasons that economists believe Principle #6: Markets are usually a good way to organize economic activity. C. In the News: The Invisible Hand Can Park Your Car 1. Parking spots with meters that have variable rates depending on demand and supply can result in a more efficient allocation of this scarce resource. 2. This article from The New York Times describes an experiment with parking meter rates in San Francisco.. D. Case Study: Should There Be a Market in Organs? 1. As a matter of public policy, people are not allowed to sell their organs. a. In essence, this means that there is a price ceiling on organs of $0. b. This has led to a shortage of organs. 2. The creation of a market for organs would lead to a more efficient allocation of resources, but critics worry about the equity of a market system for organs. Figure 8 It would be a good idea to remind students that there are circumstances when the market process does not lead to the most efficient outcome. Examples include situations such as when a firm (or buyer) has market power over price or when there are externalities present. These situations will be discussed in later chapters.
  • 13.
    130 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. V. Market Efficiency and Market Failure A. To conclude that markets are efficient, we made several assumptions about how markets worked. 1. Perfectly competitive markets. 2. No externalities. B. When these assumptions do not hold, the market equilibrium may not be efficient. C. When markets fail, public policy can potentially remedy the situation. SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Figure 1 shows the demand curve for turkey. The price of turkey is P1 and the consumer surplus that results from that price is denoted CS. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. It measures the benefit to buyers of participating in a market. Figure 1 Figure 2 2. Figure 2 shows the supply curve for turkey. The price of turkey is P1 and the producer surplus that results from that price is denoted PS. Producer surplus is the amount sellers are paid for a good minus the sellers’ cost of providing it (measured by the supply curve). It measures the benefit to sellers of participating in a market.
  • 14.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 131 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 3 3. Figure 3 shows the supply and demand for turkey. The price of turkey is P1, consumer surplus is CS, and producer surplus is PS. Producing more turkeys than the equilibrium quantity would lower total surplus because the value to the marginal buyer would be lower than the cost to the marginal seller on those additional units. Questions for Review 1. The price a buyer is willing to pay, consumer surplus, and the demand curve are all closely related. The height of the demand curve represents the willingness to pay of the buyers. Consumer surplus is the area below the demand curve and above the price, which equals the price that each buyer is willing to pay minus the price actually paid. 2. Sellers' costs, producer surplus, and the supply curve are all closely related. The height of the supply curve represents the costs of the sellers. Producer surplus is the area below the price and above the supply curve, which equals the price received minus each seller's costs of producing the good. Figure 4
  • 15.
    132 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3. Figure 4 shows producer and consumer surplus in a supply-and-demand diagram. 4. An allocation of resources is efficient if it maximizes total surplus, the sum of consumer surplus and producer surplus. But efficiency may not be the only goal of economic policymakers; they may also be concerned about equality⎯the uniform distribution of economic prosperity among the members of society. 5. Two types of market failure are market power and externalities. Market power may cause market outcomes to be inefficient because firms may cause price and quantity to differ from the levels they would be under perfect competition, which keeps total surplus from being maximized. Externalities are side effects that are not taken into account by buyers and sellers. As a result, the free market does not maximize total surplus. Quick Check Multiple Choice 1. a 2. a 3. b 4. c 5. b 6. c Problems and Applications 1. a. Consumer surplus is equal to willingness to pay minus the price paid. Therefore, Melissa’s willingness to pay must be $200 ($120 + $80). b. Her consumer surplus at a price of $90 would be $200 − $90 = $110. c. If the price of an iPhone was $250, Melissa would not have purchased one because the price is greater than her willingness to pay. Therefore, she would receive no consumer surplus. 2. If an early freeze in California sours the lemon crop, the supply curve for lemons shifts to the left, as shown in Figure 5. The result is a rise in the price of lemons and a decline in consumer surplus from A + B + C to just A. So consumer surplus declines by the amount B + C.
  • 16.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 133 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 5 Figure 6 In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown in Figure 6. The result is an increase in the price of lemonade and a decline in consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer surplus in one market often has effects on consumer surplus in other markets. 3. A rise in the demand for French bread leads to an increase in producer surplus in the market for French bread, as shown in Figure 7. The shift of the demand curve leads to an increased price, which increases producer surplus from area A to area A + B + C. Figure 7 The increased quantity of French bread being sold increases the demand for flour, as shown in Figure 8. As a result, the price of flour rises, increasing producer surplus from area D to D + E + F. Note that an event that affects producer surplus in one market leads to effects on producer surplus in related markets.
  • 17.
    134 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 8 4. a. Bert’s demand schedule is: Price Quantity Demanded More than $7 0 $5 to $7 1 $3 to $5 2 $1 to $3 3 $1 or less 4 Bert’s demand curve is shown in Figure 9. Figure 9 b. When the price of each bottle of water is $4, Bert buys two bottles of water. His consumer surplus is shown as area A in the figure. He values his first bottle of water at $7, but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of
  • 18.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 135 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total consumer surplus is $3 + $1 = $4, which is the area of A in the figure. c. When the price of each bottle of water falls from $4 to $2, Bert buys three bottles of water, an increase of one. His consumer surplus consists of both areas A and B in the figure, an increase in the amount of area B. He gets consumer surplus of $5 from the first bottle ($7 value minus $2 price), $3 from the second bottle ($5 value minus $2 price), and $1 from the third bottle ($3 value minus $2 price), for a total consumer surplus of $9. Thus consumer surplus rises by $5 (which is the size of area B) when the price of each bottle of water falls from $4 to $2. 5. a. Ernie’s supply schedule for water is: Price Quantity Supplied More than $7 4 $5 to $7 3 $3 to $5 2 $1 to $3 1 Less than $1 0 Ernie’s supply curve is shown in Figure 10. Figure 10 b. When the price of each bottle of water is $4, Ernie sells two bottles of water. His producer surplus is shown as area A in the figure. He receives $4 for his first bottle of water, but it costs only $1 to produce, so Ernie has producer surplus of $3. He also receives $4 for his second bottle of water, which costs $3 to produce, so he has producer surplus of $1. Thus Ernie’s total producer surplus is $3 + $1 = $4, which is the area of A in the figure. c. When the price of each bottle of water rises from $4 to $6, Ernie sells three bottles of water, an increase of one. His producer surplus consists of both areas A and B in the figure, an increase by the amount of area B. He gets producer surplus of $5 from the first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price minus $3 cost), and $1 from the third bottle ($6 price minus $5 price), for a total producer surplus of $9.
  • 19.
    136 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Thus producer surplus rises by $5 (which is the size of area B) when the price of each bottle of water rises from $4 to $6. 6. a. From Ernie’s supply schedule and Bert’s demand schedule, the quantity demanded and supplied are: Price Quantity Supplied Quantity Demanded $2 1 3 $4 2 2 $6 3 1 Only a price of $4 brings supply and demand into equilibrium, with an equilibrium quantity of two. b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shown in Problems 3 and 4 above. Total surplus is $4 + $4 = $8. c. If Ernie produced one less bottle, his producer surplus would decline to $3, as shown in Problem 4 above. If Bert consumed one less bottle, his consumer surplus would decline to $3, as shown in Problem 3 above. So total surplus would decline to $3 + $3 = $6. d. If Ernie produced one additional bottle of water, his cost would be $5, but the price is only $4, so his producer surplus would decline by $1. If Bert consumed one additional bottle of water, his value would be $3, but the price is $4, so his consumer surplus would decline by $1. So total surplus declines by $1 + $1 = $2. 7. a. The effect of falling production costs in the market for flat-screen TVs results in a shift to the right in the supply curve, as shown in Figure 11. As a result, the equilibrium price of flat-screen TVs declines and the equilibrium quantity increases. Figure 11 b. The decline in the price of flat-screen TVs increases consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D. Prior to the shift in supply, producer surplus was areas B + E (the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G – B, which may be positive or negative. The increase in quantity increases Price of flat-screen TVs Quantity of flat-screen TVs Demand S2 S1 P1 P2 Q1 Q2 E A B F C G D
  • 20.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 137 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. producer surplus, while the decline in the price reduces producer surplus. Because consumer surplus rises by B + C + D and producer surplus rises by F + G – B, total surplus rises by C + D + F + G. c. If the supply of flat-screen TVs is very elastic, then the shift of the supply curve benefits consumers most. To take the most dramatic case, suppose the supply curve were horizontal, as shown in Figure 12. Then there is no producer surplus at all. Consumers capture all the benefits of falling production costs, with consumer surplus rising from area A to area A + B. Figure 12 8. Figure 13 shows supply and demand curves for haircuts. Supply equals demand at a quantity of three haircuts and a price between $4 and $5. Firms A, C, and D should cut the hair of Claire, Gloria, and Phil. Jay’s willingness to pay is too low and firm B’s costs are too high, so they do not participate. The maximum total surplus is the area between the demand and supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value minus $3 cost for the second, plus $5 value minus $4 cost for the third). Figure 13 1 2 3 4 1 2 3 4 5 6 7 8 Quantity of Haircuts Price of Haircuts Claire Gloria Phil Jay D A C B A B S1 S2 Demand Quantity of flat-screen TVs Price of flat-screen TVs
  • 21.
    138 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9. a. The effect of falling production costs in the market for computers resulted in a shift to the right in the supply curve, as shown in Figure 14. As a result, the equilibrium price of computers declined and the equilibrium quantity increased. The decline in the price of computers increased consumer surplus from area A to A + B + C + D, an increase in the amount B + C + D. Figure 14 Figure 15 Prior to the shift in supply, producer surplus was areas B + E (the area above the supply curve and below the price). After the shift in supply, producer surplus is areas E + F + G. So producer surplus changes by the amount F + G – B, which may be positive or negative. The increase in quantity increases producer surplus, while the decline in the price reduces producer surplus. Because consumer surplus rises by B + C + D and producer surplus rises by F + G – B, total surplus rises by C + D + F + G. b. Typewriters and computers are substitutes. The decline in the price of computers means that people substituted computers for typewriters, shifting the demand for typewriters to the left, as shown in Figure 15. The result is a decline in both the equilibrium price and equilibrium quantity of typewriters. Consumer surplus in the typewriter market changes from area A + B to A + C, a net change of C – B. Producer surplus changes from area C + D + E to area E, a net loss of C + D. Typewriter producers are sad about technological advances in computers because their producer surplus declines.
  • 22.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 139 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. c. Software and computers are complements. When the price of computers decreases, the demand for software increases. The demand for software shifts to the right, as shown in Figure 16. The result is an increase in both the price and quantity of software. Consumer surplus in the software market changes from B + C to A + B, a net change of A – C. Producer surplus changes from E to C + D + E, an increase of C + D, so software producers should be happy about the technological progress in computers. Figure 16 d. Yes, this analysis helps explain why Bill Gates is one the world’s richest people. His company produces a lot of software and the producer surplus in the software market increased with the technological advance in computers. 10. a. With Provider A, the cost of an extra minute is $0. With Provider B, the cost of an extra minute is $1. b. With Provider A, my friend will purchase 150 minutes [= 150 – (50)(0)]. With Provider B, my friend would purchase 100 minutes [= 150 – (50)(1)]. c. With Provider A, she would pay $120. With Provider B, he would pay $100.
  • 23.
    140 ❖ Chapter7/Consumers, Producers, and the Efficiency of Markets © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 17 d. Figure 17 shows the friend’s demand. With Provider A, she buys 150 minutes and her consumer surplus is equal to (1/2)(3)(150) – 120 = 105. With Provider B, her consumer surplus is equal to (1/2)(2)(100) = 100. e. I would recommend Provider A because she receives greater consumer surplus when buying from that provider. 11. a. Figure 18 illustrates the demand for medical care. If each procedure has a price of $100, quantity demanded will be Q1 procedures. Figure 18 b. If consumers pay only $20 per procedure, the quantity demanded will be Q2 procedures. Because the cost to society is $100, the number of procedures performed is too large to maximize total surplus. The quantity that maximizes total surplus is Q1 procedures, which is less than Q2.
  • 24.
    Chapter 7/Consumers, Producers,and the Efficiency of Markets ❖ 141 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. c. The use of medical care is excessive in the sense that consumers get procedures whose value is less than the cost of producing them. As a result, the economy’s total surplus is reduced. d. To prevent this excessive use, the consumer must bear the marginal cost of the procedure. But this would require eliminating insurance. Another possibility would be that the insurance company, which pays most of the marginal cost of the procedure ($80, in this case) could decide whether the procedure should be performed. But the insurance company does not get the benefits of the procedure, so its decisions may not reflect the value to the consumer.
  • 25.
    Exploring the Varietyof Random Documents with Different Content
  • 26.
    INTRUSION The lilies sagwith rain-drops: Their petals hold fire that does not break out. (As though it slept between vapor-silk It could not burn). And a young breeze stumbles upon the lilies And strokes them with his spinning hands.... The lilies and the young breeze are not unlike Your silence and the rush of soft words breaking it.
  • 27.
    CHANGE I came upona maiden Blowing rose petals in the air And catching them, as they fell, Upon quick fingertips Her laugh fell lighter than the petals And dropped little gestures upon my forehead. I gave her sadness and she blew it up As she had blown the rose petals: And it almost seemed joy as her fingers caught it. But I was only a wanderer plaited with dust, Who gave her new petals to play with.
  • 28.
    PORTRAITS I You were inthe room, yet your body Was stone cut in drooping lines And hued with decorous puzzling pinks and browns. Even your hair seemed an elfin wig Carelessly thrown upon your stone head. And your eyes were hollows cradling broken shadows. When you spoke your body did not change: It was as though a flock of sleepy birds Had issued from your stone mouth. II Vague words tapered off to pale weariness, And sunlight was night smiling in his sleep. Your hands moved as though they sought a dying emotion: Your lips, drawn back, seemed evading sound. When twilight fell upon us, Like night striving to forget his dream, We had long since passed out of the room.
  • 29.
    MEETING A mood whoseheart was a flagon of ashes, Met another mood whose lips were stained With the odors of sleeping wine-songs. The second mood kissed the breast of the first And filled the ashen flagon with his pale purple breath. Then the two moods died, and he who bore them, Being an old man, sat down to make others.
  • 30.
    COTTON-PICKER Like the armsof a child lifting shining white lilies from a little brown pond, Sunlight drew songs from this lithe, grimacing negress Whose skin was smoother than the cloudless sky above her. The flecks of cotton they picked brought a changing white stupor To the negroes about her, but she swung down her row, With broad smiles cutting her pent-up satin face. And though the afternoon slowly pressed down her back, She never ceased humming to her joyous Christ.
  • 31.
    FRIENDSHIP Grey, drooping-shouldered bushesscrape the edges Of bending swirls of yellow-white flowers. So do my thoughts meet the wind-scattered color of you. A green-shadowed trance of water Is splintered to little, white tasseled awakenings By the beat of long, black oars. So do my thoughts enter yours. Split, brown-blue clouds press into each other Over hills dressed in mute, clinging haze. So do my thoughts slowly form Over the draped mystery of you.
  • 32.
    FACTORY GIRL Why areyour eyes like dry brown flower-pods, Still, gripped by the memory of lost petals? I feel that if I touched them They would crumble to falling brown dust And you would stand with blindness revealed. Yet, you would not shrink, for your life Has been long since memorized, And eyes would only melt out against its high walls. Besides, in the making of boxes Sprinkled with crude forget-me-nots, One is curiously blessed if ones eyes are dead.
  • 33.
    DEATH I A fan ofsmoke in the long, green-white revery of the sky, Slowly curls apart. So shall we rise and widen out in the silence of air. II An old man runs down a little yellow road To an out-flung, white thicket uncovered by morning. So shall I swing to the white sharpness of death.
  • 34.
    INTERLUDE Sun-light recedes onthe mountains, in long gold shafts, Like the falling pillars of a temple. Then singing silence almost too nimble for ears: The mountain-tenors fling their broad voices Into the blue hall of the sky, And through a rigid column of these voices Night dumbly walks. Night, crushing sound between his fingers Until it forms a lightly frozen couch On which he dreams.
  • 35.
    CHORUS GIRL Her voicewas like rose-fragrance waltzing in the wind. She seemed a shadow stained with shadow colors Swinging through waves of sunlight. Perhaps her heart was an old minstrel Sleepily pawing at his little mandolin.
  • 36.
    OLD AGE In meis a little painted square Bordered by old shops, with gaudy awnings. And before the shops sit smoking, open-bloused old men, Drinking sunlight. The old men are my thoughts: And I come to them each evening, in a creaking cart, And quietly unload supplies. We fill slim pipes and chat, And inhale scents from pale flowers in the center of the square.... Strong men, tinkling women, and dripping, squealing children Stroll past us, or into the shops. They greet the shopkeepers, and touch their hats or foreheads to me.... Some evening I shall not return to my people.
  • 37.
    TO ONE DEAD Iwalked upon a hill And the wind, made solemnly drunk with your presence, Reeled against me. I stooped to question a flower, And you floated between my fingers and the petals, Tying them together. I severed a leaf from its tree And a water-drop in the green flagon Cupped a hunted bit of your smile. All things about me were steeped in your remembrance And shivering as they tried to tell me of it.
  • 38.
    TO A DISCARDEDSTEEL RAIL Straight strength pitched into the surliness of the ditch: A soul you have—strength has always delicate, secret reasons. Your soul is a dull question. I do not care for your strength, but your stiff smile at Time: A smile which men call rust.
  • 39.
    TO AN ENEMY Idespise my friends more than you. I would have known myself but they stood before the mirrors And painted on them images of the virtues I craved. You came with sharpest chisel, scraping away the false paint. Then I knew and detested myself, but not you, For glimpses of you in the glasses you uncovered Showed me the virtues whose images you destroyed.
  • 40.
    SOLDIERS The smile ofone face is like a fierce mermaid Floating dead in a little pale-brown pond. The lips of one are twisted To a hieroglyphic of silence. The face of another is like a shining frog. Another face is met by a question That digs into it like sudden claws. Beside it is a face like a mirror In which a stiffened child dangles.... Dead soldiers, in a sprawling crescent, Whose faces form a gravely mocking sentence.
  • 41.
    FORGETFULNESS Happier than green-kirtledapple-trees Waving their soft-rimmed fans of light And taking the morning mist, in quick breaths, You sit in the woven meditation and surprise Of a morning uncovering its wind-wreathed head. And yet within the light stillness of your soul Dream-heavy guards sleep uneasily Over the body of your last slain sorrow.
  • 42.
    THE INTERNE O theagony of having too much power! In my passive palm are hundreds of lives. Strange alchemy, they drain my blood. My heart becomes iron; my brain copper; my eyes silver; my lips brass. Merely by twitching a supple finger, I twirl lives from me, Strong-winged or fluttering and broken. They are my children: I am their mother and father. I watch them live and die.
  • 43.
    REAR PORCHES OFAN APARTMENT BUILDING A sky that has never known sun, moon, or stars, A sky that is like a dead, kind face Would have the color of your eyes, O servant-girl singing of pear-trees in the sun And scraping the yellow fruit you once picked When your lavender-white eyes were alive. On the porch above you sit two women With faces the color of dry brown earth; They knit grey rosettes and nibble cakes. And on the porch above them are three children Gravely kissing each other’s foreheads, And an ample nurse with a huge red fan.... The death of the afternoon to them Is but the lengthening of blue-black shadows on brick walls.
  • 44.
    TO ONE DEAD Shakingnights, noons tame and dust-quiet, and wind-broken days Were hands modelling your face. Yet people glanced at you and pass on. And now they speak of you, Quickly weighing tiny, stray chips of you: They who did not know you.
  • 45.
    THE MASTER-POISONER Maxwell Bodenheimand Ben Hecht People Sobe The Poisoner Fana His Wife Maldor His Assistant The Poisoner’s living-room. Purple velvet draperies embroidered with huge lavendar and orange lilies hang over the rear wall, completely covering it. One great scarlet cushion, four feet high and five feet wide, stands at the center of the wall against the draperies. The right and left walls have two small, narrow windows near the top, through which a dimly glowing light pours, forming a triangle as it strikes the floor. A narrow tall entrance blocked by orange-colored portieres stands in the center of the right and left walls. The floor is black and uncovered. A huge black candle three inches wide and five feet high emerges from a black urn in the center of the floor, bisecting the triangle formed by the two streams of pale light. White and scarlet cushions are scattered about the floor. On two of these cushions sit Sobe, the Poisoner, and Maldor, his Assistant. They sit to the left and right of the candle, eyeing each other with a softly-smiling melancholy. Sobe is tall, black-bearded, condor-faced, and clad in an orange robe, and black sandals. Maldor is short and smooth-shaven, with the face of a sleepy girl. He wears a white robe and sandals. Maldor (puzzled and wistful, speaks softly to the Poisoner) A secretion from the intestines of the cane-rat found in the Hwang-Ho river, sprinkled with the pollen of jasmine-flowers, produces a most wonderful poison, O Master. When dropped into the eyes of a virgin, this poison will cause her face to contract in a twitching crescendo. Sobe (speaks listlessly)
  • 46.
    The eyes ofa virgin are too blank for a poisoner’s relish. Maldor (speaks with eager, hopeful emphasis) The virgin, O Master, provides only the unimportant tinge to the process. The relish lies in the pompous complexity of the poison. Sobe Complexity is but a shattered mirror. Maldor (still hopefully) From the irridescent dimples of the Medusae fish I have extracted a saffron liquid, O master, which mixed with the larvae of dragon-flies, completes a most satisfactory poison. Administered in microscopic doses, it creates ribbons of flame in the blood and its enchanting victim expires, glowing with strange, phosphorescent colors. Sobe I am sick of suavely terrifying poisons. Maldor (speaks wistfully) What strange delicacy makes you almost brutal tonight, O Master? Sobe (speaks as to himself) Wearisome poisons. A droll flutter ... and then always that dainty monotony —death. Maldor (speaks swiftly) But surely our work still holds you, O Master. You have not become reconciled to the empty ferocity of death! Sobe (speaks gently) Ah, Maldor, our poisons lend their little flourishes merely to life. I would like to poison death. Maldor (speaks aggrievedly) But master, those cringing writhings, those indelicate squirmings and jocund acrobatics which our most fastidious poisons produce—what more tender satisfaction! Sobe (listlessly) They are but interludes leaving me languidly envious of death, my master. Maldor (speaks with indignation)
  • 47.
    You have nomaster! Your last poison of moth-blood produced an effect so exquisitely monstrous that even death was appalled. Ah, the bones of an old woman, dissolving within her, left her body, a loose grimace. Sobe I am sick of all these sterile grimaces. Maldor (speaks slowly) Some new and lethal poem has sighed itself into your heart. Sobe (softly) There are no poisons remaining. We have signalled death with many diverting gestures. We have fitted too many clownish shrouds. Maldor You are wistfully nervous. Some dream has burned your heart to an ashen bag. Sobe I will tell you, Maldor, what I have done. Maldor Surely, you have found no last contortion for life. Sobe I have found the ultimate contortion. Maldor Some nibbling horror.... Sobe No, Beauty. Maldor (after a pause) Beware, master, beauty is life’s revenge upon death. Sobe You know very little. Beauty is the devourer of death. Maldor (speaks slowly) What poison is this? Sobe (speaks gently) A drop taken into the blood, no more. The skin becomes a milk-tinted pond in which wine-ghosts timidly bathe. The eyes, like purple breasted birds, beat against the day. The mouth blooms into splendours. Ah, Maldor, the
  • 48.
    drop releases beautyfrom her thousand prisons. The victim stands washed in a flood of light before which imagination dies. Maldor (speaks maliciously) What unique philanthropy is this? Has Sobe the Poisoner dreamed of immortality? Sobe (gently) Sobe the Poisoner has made a drop of poison which will create beauty and death. In the soul of its victim these two monsters meet and strive against each other. Immortal beauty and death remain clutched in a stifling caress. The poison, as it works upon its victim, renders her more radiant and beautiful each moment, and each moment it paralyses her heart. Maldor And then what happens? Sobe Bereft of life, but with a beauty which must resist death, the tortured one remains my own. Thus with my poison I become death’s master. Thus that which should die, does not die. Thus death advancing creates a flame which it cannot stifle. Maldor Beware. Sobe (speaks with quickened emphasis) Death is my slave. I summon him. I open a jewelled gate which he cannot pass. Maldor (speaks softly) I do not like this poison. Sobe (who smiles) You are an amateur of death, Maldor. Maldor (softly) I do not like this poison. Sobe I will tell you another virtue of this poison, which perhaps will entice your fears. Maldor
  • 49.
    What is thisvirtue? Sobe Other poisons I have made provided us only with that little frenzied prelude to death. Our victims have amused us somewhat, with unconscious heavings—little, docile marionettes in the torments of poisons. But now, Maldor, our subject, inspired by the ever-increasing loveliness of her body, by the ever-growing flame of her beauty, resists in a torment beyond those instinctive spasms and dimly-felt agonies. Her overwhelming desire to prolong her beauty makes the struggle against death wondrously hideous. Maldor But since you say she cannot die, where will those struggles lead her? Sobe I do not know. I know only that a woman whose beauty feeds upon the shadows of death, must amuse us with a miracle. Maldor (softly) The virtue of this poison does not appeal to me. The miracle you promise is cluttered with subtle doubts. Death, betrayed, may blindly wander. Let us rather return to our pathetically certain poisons and revel in the final froth- sprinkled caperings of life. Ah, the powdered hair of the white caterpillar, steeped in moon-light, will cause the eyes to swell out of their sockets, and the tongue to burst. Sobe (gently) Where is Fana? Maldor Fana! Sobe Summon Fana to me. Maldor Master, do not summon Fana. Sobe I shall make Fana beautiful. (Fana draws aside the portieres at the left. Fana is tall, with a majestic ugliness. She is dressed in a dark brown robe. Her face is swathed in a pale brown veil, knotted at the nape of the neck, and
  • 50.
    falling almost toher feet. She stands motionless. The two men turn and stare at her.) Sobe (softly) I shall bring the poison. (He rises and departs through the right entrance. Maldor rises and continues to look steadily at Fana.) Fana (gently) I heard the word beauty. Maldor What else did you hear? Fana I heard only the word beauty. Maldor The master is evil tonight. Fana More evil than always? Maldor Even more. Fana What does he do? Maldor He frightens me with a mockery of death. Fana What did he say of beauty? Maldor Fana, go before he returns. (Maldor quickly walks to the right entrance, draws aside the portieres, and peers cautiously out. He returns quickly to Fana.) Maldor (speaking quickly) He has a poison to make you beautiful. Fana Ah!
  • 51.
    Maldor Go! Fana Is he wearyof my ugliness? Maldor No. He has no thought for you. He seeks to enslave his master, Death. Fana But I did hear him speak of beauty. Maldor (desperately) He means to make you the flowered tomb of beauty. I can tell you no more. Go! Fana Why do you tell me this? I have seen you smile upon things less subtle than tombs. Maldor I love you. Fana It is easy to love that which is veiled. But perhaps you love me because my face is so gentle a poison. Maldor I know not ugliness. It is a mood which has forsaken me. I plead with you to go. (Maldor hears Sobe’s footfalls and seats himself impassively upon his cushion.) Fana (softly) I shall remain. (Sobe enters. He bows to Fana.) Sobe Ah, Fana, I shall make your stay pleasant. Fana— Yes, Master. (She seats herself behind the candle between Sobe and Maldor.)
  • 52.
    Sobe (gently)— You arevery ugly, Fana. You wear a veil because you are ugly. Fana— I heard you speak of beauty. Sobe— Your body is like a broken cloud. Your face is like a pottery that crumbles in the light. You are not beautiful. Fana (softly)— Why do you tell me this so carefully? Sobe— To make you dream. Fana— Dreams are mirrors in which I do not care to look. Sobe— I have a poison that will open your hearts to dreams. Fana— The dream which poison brings is too long. Sobe— This poison brings two dreams. One of beauty and one of death. Would you listen to them? Fana— Listening to dreams one avoids the dreariness of sleep. Sobe (gently)— You are very ugly, Fana. I have a poison which will make you beautiful. Fana— To lie beautiful in death is a lyric privilege, but so faint an echo. Sobe— You reason too simply. I cannot promise you life. Perhaps your pleasure will be only that of one who greets a phantom lover. A moment of loveliness and the thought of eternal beauty embalmed in a dark dream, may be all that shall be given to you before death. Fana
  • 53.
    And what elseis possible? Sobe It is possible that you will become so beautiful that you cannot die. It is possible that Death, feeding your beauty, will exhaust itself in a last gentle caress. Then you will still live, and Death, a eunuch, will drag himself after you. Fana But why do you speak so eagerly? Surely your only interest does not lie in my exchanging one veil for another. Maldor (breaking his silence softly) No, Fana, my master dreams of edged subtleties. Sobe Make them simple with your telling, Maldor. Maldor My master is weary of ordinary effects. He has watched too many frenzied struggles. No longer do they intrigue him. He yearns for something elaborate. He has dreamed of more fragile tortures. The poison he will give you brings no pain, but the beauty it creates within you will sharpen to madness your desire to live, and my master will sit and look into your eyes. Sobe Have you finished, Maldor? Maldor Yes. Sobe (gently) I desire another assistant, Fana. As you see, one who will serve me more faithfully, and whose loves are not so obvious. I will tell you why I am so eager. I wish simply to master death. Fana Have you the poison? Sobe Here. (He takes from his robe a small flagon and hands it to her.) Sobe
  • 54.
    I have hiddenthe drop in wine. (Fana rises and lifts her veil from her mouth. She drinks, smiling at Maldor, who sits and stares impassively ahead of him. Sobe rises and moves to the back of the room, watching her.) Fana I have drunk. Sobe (softly) Unveil yourself. (Fana unveils herself.) Sobe Ah! (He draws aside a panel portiere in the rear draperies, and a long narrow mirror is revealed.) Sobe Look. Fana Ah! Sobe (gazing at her intently) You are beautiful. Fana (whispering) I grow more beautiful. Sobe (he speaks as if growing dazed) Your eyes.... Fana My eyes are like madly swinging torches. Sobe Your mouth.... Fana My mouth is like the little red door to a palace. Sobe Your hair.... Fana (eyeing the mirror still)