1. PRINCIPLES OF MACROECONOMICS
Text: Principles of Macroeconomics, N. Gregory Mankiw, Sixth Edition.
Instructor: Sue Guzek, Kansas State University Salina
Music: We Gonna Make You… By Troy “Trombone Shorty” Andrews and Orleans
Avenue – Orleans and Claiborne
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CONSUMERS,
PRODUCERS, AND
EFFICIENCY OF
MARKETS

2. CUSTOMER SURPLUS AND WILLINGNESS TO PAY
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Willingness to pay is the maximum amount
a buyer is willing to pay for a good

3. HOW MUCH ARE YOU WILLING TO PAY FOR…
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Consumer Surplus is the amount a buyer is
willing to pay for a good MINUS the
amount the buyer actually pays

4. CONSUMER SURPLUS
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Consumer Surplus is the amount a buyer is
willing to pay for a good MINUS the
amount the buyer actually pays
MINUS

5. CONSUMER SURPLUS
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A vanilla
Bean
Frappucino
sells for
$3.20
On a hot August
day, (after a night of
studying, you might be
willing to pay $4
Your Consumer
Surplus that day
would be…..
80 ¢

6. CONSUMER SURPLUS AND THE DEMAND CURVE
 Willingness to Pay=
height of the Demand
Curve
 Surplus = space between
the curve and the price 6
 As Price falls, Qd rises
 Consumer Surplus rises
because of: lower price and
new buyers

7. WHAT DOES CONSUMER SURPLUS MEASURE?
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The benefit buyers
receive from a
good….
AS THEY
PERCEIVE IT

8. COST AND WILLINGNESS TO SELL
 Cost is the value of everything a seller must
give up to produce a good
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9. PRODUCER SURPLUS
 The amount a seller is paid for a good
MINUS the Seller’s cost of providing it
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10. MEASURING SELLER SURPLUS
 Producer Surplus
= Price – Cost to
Produce 10
 When price rises, Qs rises
and Producer Surplus
rises, because of increased
price and new producers

11. MARKET EFFICIENCY
 Efficiency: Maximizing total surplus received
by all members of society
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 Total Surplus = Value to Buyers – Cost to
Sellers

12. EQUALITY
 Distributing economic prosperity uniformly
among members of society
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13. EVALUATING MARKET EQUILIBRIUM
 FREE MARKETS:
 Allocate goods to buyers
who value them most, as
measured by willingness to
pay
 Allocate demand to sellers
who produce at lowest cost
 Produce the quantity of
goods to maximize the sum
of consumer and producer
surplus
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14. HOW MUCH WOULD YOU PAY???
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See pages 148 and 149 n the text book

15. TERMS AND CONCEPTS
 Willingness to pay
 Consumer Surplus
 Cost
 Producer Surplus
 Efficiency
 Equality
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16. SOURCES
Principles of Macroeconomics, N. Gregory
Mankiw, Sixth Edition: PowerPoint Slides
prepared by: Andreea CHIRITESCU, Eastern
Illinois University
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