College Textbook Market : - PowerPoint Presentation

1. College Textbook Market:On average, students spend $1,200 per semesterAn 82% rise in price from 2002-2012More than an 800% increase from 1978!!!So, what do college students do?

2. Consumer and Producer SurplusUnderstand and identify the associated benefits of consumer and producer surplus in the marketplace and be able to explain and illustrate market factors that increase/decrease consumer/producer benefits.

3. Willingness to PayLet’s assume we are looking at a perfectly competitive market for used college textbooks (done to maximize consumer/producer surplus in high priced textbook market)The maximum price at which you were willing to buy that good or service is a person’s willingness to payThose price points can be translated into a demand curve for the used textbookLet’s take a look…

4. The Demand CurveIn the market for a used Macro textbook, this is what these 5 students are willing to pay for it (their willingness to pay)

5. Consumer SurplusLet’s assume the book is sold for $30…Surplus: the left over amount consumers have after making the transactionPrice (willing to pay) − Price (paid) = individual consumer surplusEx: Aleisha’s CS: $59 − $30 = $29Can apply to the individual or to the entirety of the marketplaceIf we do this for every individual in the marketplace we can calculate the total consumer surplusThe remaining money/opportunity still in possession of the consumer that can be utilized for other opportunities

6. Consumer SurplusThe total consumer surplus is equal to $49If the individuals were not willing to buy at $30 they have no consumer surplus

7. Consumer SurplusThe total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above the price (equilibrium price)

8. Change in Price and Consumer SurplusLet’s go back to the used textbook market…If the price decreases to $20, what is the result?Increase in total consumer surplus!!!Aleisha gains, Brad gains, Claudia gains, and Darren is now includedVice versa: increase in price would decrease CS!

9. Producer SurplusUsed textbook market…lowest prices at which different students are willing to sell their used textbooks.

10. Producer SurplusThese price points, willingness to sell, are all different because people’s opportunity costs are all differentAll associate a different value to their bookCost: the lowest price at which the seller is willing to sell their good/serviceProducer Surplus: gains made by the seller from making a transactionPrice received − seller cost = producer surplusLet’s assume the market price for the textbook is $30Ex. Andrew: $30 − $5 = $25 Andrew’s Producer Surplus

11. Producer Surplus IllustratedTotal producer Surplus of $45Donna and Engelbert are not included because their costs were greater than the market price, so they never made the transaction

12. Producer SurplusThe total producer surplus from sales of a good at a given price is the area above the supply curve but below the market price.Rise in price will increase producer surplusThe producers selling at the initial market price will now gain surplus and new sellers stand to gain a surplus for the first timeVice versa is also true

13. Total SurplusWe can combine the CS and PS in order to get the total surplus (TS) in the market…The regular market forces we have learned about will impact CS and PS…