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Current time:0:00Total duration:5:02
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Video transcript

in the last video we saw how you can actually view a demand curve is actually a marginal benefit curve marginal benefit curve that for any given quantity of the good you're selling that that point on the curve is actually showing the marginal benefit for that incremental unit so this is a marginal benefit for that first unit this is the marginal benefit for that second unit and there's multiple ways that you could view this assuming that we're talking about this new car here maybe if you're going to only sell one unit someone really wants it really bad the benefit for them the marginal benefit for that first unit for them is going to be $60,000 now let's say if you want to sell two units that second unit might be bought by that same person and they might say well I already have one car the benefit of getting that second one is only fifty thousand that's the point at which I am neutral that's the point at which I I'm right on the fence of what willing to buy that car or it might be another person another person who's just not as enamoured as the first person is okay for fifteen thousand I do like that car and then for the third the third person there it once again they're not as enamoured as the first two they would be willing to buy it for forty thousand dollars and what we saw is at some point you could say look let's say we decide that the price ends up being for whatever reason the price ends up being $30,000 $30,000 and so when the price is $30,000 we saw this is kind of viewing it in the traditional notion of at a price what quantity were selling it but when you think about that reality what's actually happening is that this fourth person is right on the fence they're marginal benefit is exactly $30,000 so in their mind they're saying I am I am giving away $30,000 in exchange for that I'm getting something that is worth $30,000 so it's kind of like hey well you will be willing to trade this dollar for $1 well you probably be kind of on the fence about that you could you're very close to going either way you feel like it's a good deal if you could get for maybe a penny less it's a bad deal or if you were if you were getting it for a penny more so right on the fence but you're going to just barely get this fourth person to transact at this price but what we hinted at is if you do have one price for everybody in the future we'll talk about not having one price for everybody but if you did have one price for everyone these first these first units were kind of sold below where they could have been sold they were sold below their margin will benefit so remember we're viewing this the same demand curve we're not viewing as a marginal benefit curve so this first unit this first unit right over here it could have been sold at sixty thousand dollars but now we're selling it for thirty thousand dollars so this right over here this was thirty thousand dollars I'll just write thirty for thirty thousand dollars the marginal benefit is thirty thousand dollars higher than the actual price the marginal benefit of that unit the benefit that the market got out of it is thirty thousand dollars higher than the price the marginal benefit for the second unit is twenty thousand dollars higher than the price at which the product is being sold the marginal benefit for this third unit for this third unit assuming this is forty is $10,000 $10,000 or another way to think about it is the consumer surplus for this first unit was thirty thousand dollars the consumers got thirty thousand dollars more in benefit marginal benefit for them in value for themselves than they had to pay for it here the consumer surplus was twenty thousand dollars the consumer got twenty thousand more in value than that second consumer was willing to pay for it and here is ten thousand dollars and then this fourth consumer is neutral the marginal benefit is what they paid for it and so when you think about this you say well what's the total what's the total consumer surplus here let me write this down what is the total consumer consumer surplus and another way of thinking about it is what is the total excess of marginal benefit above and beyond the price paid so how much surplus marginal benefit did they get if you take out the price paid and over here the total consumer surplus is going to be the thirty thousand dollars for that first unit plus the twenty thousand dollars for that second unit plus the ten thousand dollars plus the ten thousand dollars for that third unit and so the total consumer surplus in this scenario when we sold four units at thirty thousand dollars is and we're assuming we're selling cars here so we can't sell parts of cars here we can't sell 1.1 cars I guess if we're talking about averages maybe we could but let's just say we're selling just whole numbers of cars here the total consumer surplus in this situation with 30 plus 20 plus 10 which is $60,000 or everything's in thousand so this is $60,000 so in this scenario in that week the consumers would get $60,000 more in benefit for them and perceived benefit for them than what they actually had to pay for it and if you think about it it's a little uh Nydia for the seller because you know they were selling that something at a lower price and maybe what they could have gotten from these at least these first few consumers here and that was because they just really based on the model that we have here they just had to set one price