marginal benefit -- your marginal benefit of doing something is the
increase in your total benefit from doing it a little more.
[BACK]
marginal cost -- your marginal cost of doing something is your increase
in total cost from doing it a little more.
[BACK]
net benefit -- total benefit minus total cost
[BACK]
A common fallacy is to assert that it is rational
to make the difference between marginal benefit and marginal cost
as large as possible. In this example, you would do this by taking
the action zero times, for zero net benefit.
[BACK]
Sunk costs are not costs of any actions you could take because
you can no longer do anything about them.
(It's too late -- those sunk costs are already sunk.)
[BACK]
You paid $6 for a ticket to a movie that turns out to be excruciatingly
boring. But the theater won't give you your money back (it's not
boring, they say -- the panel of critics writing in Le Snobbe et Bore
loved
it!) So the $6 is a sunk cost and doesn't affect you rational choice
of whether to stay and watch the movie or leave and do something else.
[BACK]
Because we set quantity demanded
equal to quantity supplied (for equilibrium), so
10 - 2 P = -5+ 3 P
or 15 = 5 P
or P = 3.
[BACK]
Because we plug the solution for
the price, P=3, into either the demand or supply equation:
If we use the demand equation we get Q = 10 - (2)(3) = 4
If we use the supply equation we get Q = -5+ (3)(3) = 4
Either way we do it, the answer is the same: Q = 4.
[BACK]
First, check to see
where the demand curve intersects the vertical axis. In this case
the demand curve intersects the vertical axis at the price P=5.
How do we know that? Look at the equation for the
demand curve, set Q=0, and solve for P. This shows what the price
must be if the quantity demanded is zero. Doing this, we have
0 = 10 - 2 P
or
P = 5.
Now we can see that the height of the consumer-surplus triangle is
5 - 3 = 2.
[BACK]
Copyright, Alan C. Stockman
Copyright 1997, Alan C. Stockman. All rights reserved
on all text, graphics, and design of pedagogical tools,
except those graphics that already reside in the public
domain.
You may copy any or all of this page in electronic or
print form for your own use in learning economics.
Others may copy any and all of this page provided that
they provide credit, in a clearly visible manner, to any and all readers,
in the form:
"From Alan C. Stockman's Introduction to Economics Web
Site; used with permission of Alan C. Stockman."