Econ Consumer, Producer Surplus

consumer surplus

measures economic welfare from the buyer’s side

producer surplus

measures economic welfare from the seller’s side

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

producer surplus

amount a seller is paid minus the cost of production, measures the benefit to sellers participating in a market

value to buyers - amount paid by buyers

consumer surplus equals

amount received by sellers - cost to sellers

producer surplus

consumer surplus + producer surplus

total surplus

market efficiency

when resource allocation maximizes the total surplus received by all members of society

market equality

distributing economic prosperity uniformly among the members of society

highly

free markets allocate the supply of goods to the buyers who value them most ________

the least cost

free markets allocate the demand for goods to the sellers who can produce them at ___________

maximizes

free markets produce the quantity of goods that _________ the sum of consumer and producer surplus

deadweight loss

the fall in total surplus that results from a market distortion, such as a tax

taxes

__________ cause deadweight losses because they prevent buyers and sellers from realizing the gains of trade

tax incidence

the side that is more inelastic pays more of the tax

inelastic

when demand is more ________ than supply, buyers bear most of the tax burden

inelastic

whens supply is more _________ than demand, producers bear most of the cost of the tax

inelastic

tax revenue is larger the more _________ the demand and supply are

excise tax

a legislated tax on specific goods or services at purchase such as fuel, tobacco, and alcohol

no tariffs

increased total surplus with international trade, no deadweight loss

tariff

a tax on goods produced abroad and sold domestically

revenue tariff

excise tax levied on goods that are not produced in the domestic market

protective tariff

excise tax levied on a good that is produced in the domestic market

quota

limits the number of goods that can be produced, imported or exported (quantity control)

embargo

restricts commerce or exchange with a specified country

subsidy

an amount of money given directly to firms by the government to encourage production and consumption

tariffs and quotas

• reduce the quantity of imports

• raise the domestic price of the good

• decrease the welfare of domestic consumers

• increase the welfare of domestic producers