11 votes
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Price discrimination- how much is optimal?

Varian has a paper on Price Discrimination and Social Welfare in which he gives some necessary and sufficient conditions for (third degree) price discrimination to increase welfare. A necessary ...
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9 votes

Price discrimination- how much is optimal?

Price discrimination is generally welfare ambiguous. Basic example: A monopoly can price discriminate between two market segments. In segment A, there is one consumer with a willingness to pay of $\$...
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  • 2,167
7 votes
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Consumer surplus in case of perfectly inelastic demand

From a purely theoretical perspective, if an individual's demand curve is perfectly inelastic, then her willingness to pay for the good is infinite. NB this also implies that she has an infinite ...
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  • 151
6 votes
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what is consumer surplus practically?

It is better to think of it as a "saving" rather than as a"surplus". Also, it is better understood if we imagine heterogeneous consumers for whom a threshold price exists, a "maximum willingness to ...
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6 votes

consumer and producer surplus

TL;DR version: "the tunnel" and D+A+B have exactly the same area. You are right to say that post-subsidy producer surplus is equal to the blue area in the following figure: However, it turns out ...
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5 votes

Consumer surplus in case of perfectly inelastic demand

Let $Q^d = D(p)$ be the market demand function, depending on price $p$. Let $p^*$ be equilibrium price (that depends also on supply of course). Then Consumer Surplus is usually defined as $$\text{CS}=...
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5 votes
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Is there a class of demand functions that deliver equal surplus to consumers and a monopolist?

We have that $$D(p^*,\mathbf{a}) = -\frac {d}{dp^*}\int_{p^*}^\infty\!D(p;\mathbf{a})\,dp,$$ $$\Rightarrow \text{PS}(p^*) = -\text{CS}'(p^*)p^* \tag{1}$$ So $$\text{PS}(p^*)= \text{CS}(p^*) \...
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5 votes
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Integral solution (or a simpler) to consumer surplus - What is wrong?

Your calculation is correct. We can doublecheck your work with a graphical approach. As shown in the figure below, $CS$ at some arbitrary and not necessarily equilibrium price $p_0$ is the gray-shaded ...
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  • 14.4k
4 votes

Evidence that open source production processes increase efficiency and/or consumer surplus?

There is a large economic literature on intellectual property rights. However, the issue seems far from settled on what even the optimal duration for patents are. Note that open source is even a step ...
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4 votes
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Consumer behavior with constrained demand

In a two-good space, initially the consumer maximizes $U(x,z)\;\; s.t. \;\;p_xx+p_zz =I$ and we assume it obtains the solution $(x^*, z^*)$ as a function of prices and income. In the constrained ...
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4 votes
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Why is consumer surplus the area under the curve?

This is quite fundamental, so I'd encourage you to look up your textbook as well... but here's a short explanation. Imagine that there are $n$ consumers in the market. You sort them by their ...
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4 votes
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Is the consumer surplus on a Giffen/Veblen good negative?

Actually, neither demand for Veblen good nor for Giffen good is strictly increasing in price. In case of Giffen good the demand actually looks as shown below in picture 1. The reason for this is that ...
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4 votes

Upward sloping demand curves can’t exist!

Upward sloping demand curves are rare but they can exist for a class of a good that is called Giffen good. Upward sloping demand can exist because price of a good or service has two effects: ...
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3 votes
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Can consumer surplus be negative if a consumer is forced to make a purchase?

Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are ...
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  • 4,148
3 votes

Consumer behavior with constrained demand

It appears that the consumer faces an exogenous additional constraint in her optimization problem, which restricts the feasible set for the good in question, say $x$. We take this for granted: the ...
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3 votes

Can a monopoly INCREASE the market surplus compared with a competitive market?

Under standard assumptions (some of which you state in your question: no externalities, etc.), no. This follows from the First Welfare Theorem. Perhaps there are departures from standard models that ...
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3 votes
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Issues with an application of definite internal and marginal utilities

The mistake you are making appears to be treating $\theta_i$ as a variable while in reality it is a specific value of the derivative. So $$\int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i dq \;\;\; i=l,...
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3 votes
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Consumer Surplus question

Image courtesy http://economicsonline.co.uk/ Consumer surplus is the sum (integral) of differences between the price each consumer would have payed and the price they got to pay. You need to find out ...
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3 votes
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Can individual consumers ever be price-makers, and can they thereby have major effects on welfare?

Answer to the Question on Welfare The welfare analysis is not as simple as that. First, let us set aside for a second any inequality considerations (we can add them on later but there are some ...
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3 votes

Integral solution (or a simpler) to consumer surplus - What is wrong?

Although your question is already answered, I am just adding a small interesting detail that might help from doing some math (especially if the demand function is rather complex): See that (for any ...
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  • 1,630
3 votes
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consumer surplus decreasing

The MU question you quote is poorly worded. Here the proper answer would be: C Indeterminate with the given information First we can visualize it as shown on the ...
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  • 42.1k
3 votes
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Curiousity about the accuracy of an example about consumer surplus

I know this question has almost definitely been answered in the comment section, yet I will try my best to clarify the theoretical background. "Willingness to Pay", or WTP for short, is each ...
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2 votes

Price discrimination- how much is optimal?

Assuming that market power is given, discrimination is always beneficial to agents whose indifference price is smaller than the optimal non-discriminatory price. This is because under discrimination, ...
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  • 10.4k
2 votes
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Calculate deadweight loss from cost and inverse demand function in monopoly

I'm going to give you the intuition behind this exercise, so you can solve it for your own. The definition of deadweight loss is the following: In economics, a deadweight loss is a loss of economic ...
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2 votes

Why is EV<CV if the good is inferior?

I believe Marshallian demands are less steep than Hicksian demands because we reverse the y and x axis in economics. Thus a larger derivative of x with respect to p will be less steep since p is on ...
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  • 326
2 votes

What are the (immediate) effects of changing a good's price on consumer and producer surplus?

What is CS and PS out-of-equilibrium at $P=30$: I think that answer to this question lies in misunderstanding the definition's of consumer and producer surplus. The consumer and producer surplus are ...
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2 votes
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Change in Consumer Surplus with Two Price Changes: Is it Path Dependent?

Your reasoning is correct (i.e. the book is wrong). First, let's follow the book's logic a little more carefully step by step, beginning with the case where p1 changes first: a fall in p1 leads to a ...
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  • 16.6k
2 votes
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Real world evidence that voluntary exchange is mutually beneficial?

First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was ...
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2 votes
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Is the amount of tax that consumers pay the same as the amount producers pay?

Tax is payed by the party it’s levied on, but I think your question is about tax burden and loss of consumer/producer surplus. In this case both producers and consumers loose the same amount of ...
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  • 42.1k
2 votes

Calculating Consumer Surplus Given Table

The key to this is in the hint. It lets you know supply and demand are both linear, so you need to figure out what the functions of those two curves are. In this case, you have $$ Q_D = 18 - 1.5P $$ $$...
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