Economics: Surpluses, Welfare, and Government Intervention (Lecture Notes)

A set of vocabulary flashcards covering key concepts from surpluses, welfare, and government intervention in the notes.

Consumer surplus

The gain to consumers from paying a price below the maximum they are willing to pay; represented by the area under the demand curve and above the market price.

Producer surplus (supplier surplus)

The gain to producers from selling at a price higher than the minimum they'd accept; represented by the area above the supply curve and below the market price.

Total welfare gain

The sum of consumer surplus and producer surplus; the overall net benefit to society from a market.

Deadweight loss

The loss of total welfare that occurs when markets are not at the efficient equilibrium (e.g., due to taxes or price controls); area representing missed gains from trade.

Tax wedge

The price gap between what buyers pay and what sellers receive after a tax; shows how the tax burden is split between buyers and sellers.

Tax revenue

Government income from taxes; equal to tax per unit times the quantity traded.

Price ceiling

A legal maximum price set by the government; can cause a shortage if set below the equilibrium price.

Price floor

A legal minimum price set by the government; can cause a surplus if set above the equilibrium price (e.g., minimum wage).

Shortage

A situation where quantity demanded exceeds quantity supplied at the current price; often caused by price ceilings.

Subsidy

A government payment to producers per unit produced; raises the price received by producers and can create excess supply; the difference between price paid by consumers and price received by producers equals the subsidy.

Minimum wage

A price floor in the labor market; a legally mandated minimum hourly wage that can lead to unemployment if above the market-clearing wage.

Crowding out

When a policy like a minimum wage reduces employment opportunities for some workers by increasing wages and decreasing demand for less-skilled labor.

Usury laws

Government-imposed caps on interest rates; restrict how high lenders can legally charge.

Barter

Exchange of goods directly without using money; trade of two resources rather than cash (as discussed in the notes).

Equilibrium price and quantity

The price and quantity at which quantity demanded equals quantity supplied; the market-clearing point.