A New Way to Look at Demand and Supply: Marginal Benefit and Marginal Cost

Before leaving this chapter, let us consider a different way to look at demand and supply analysis. Usually when we look at a demand curve, we read it from the vertical axis (price) to the horizontal axis (quantity demanded), but we could read from quantity to price. The same holds true for a supply curve.

Marginal Benefit

Suppose we ask Adam how much an apple is worth to him—perhaps in an auction context—and we are told 90¢. It is worth this much to him because he is willing to pay 90¢ to get it. Probably, the second apple would be worth less to Adam—perhaps only 80¢. And so on. Each apple’s extra value, or marginal benefit, can be recorded as shown on the diagram and ...

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