Surplus

Willingness to pay

The maximum you are willing to pay for something

Consumer surplus

Difference between what someone is willing to pay for a good and what someone actually pays, measure of economic well-being and calculated in dollars

Demand curve

Shows the maximum willingness to pay of each consumer and shows the value/benefit of the next unit of the good to the next buyer

Price

What good sells for

Cost

What the producers spent to produce the good and what it costs the firm

Willingness to sell

Minimum cost for production

Producer surplus

Difference between price and cost

Supply curve

Shows the minimum willingness to sell of each producer and shows the cost of producing the next unit of the good. Also a measure of economic well-being - producers and dollar amount.

Total surplus

Total area between supply and demand curves up to the quantity that is bought or sold.

Smith’s invisible hand

Markets end up being more efficient than command or traditional economies

Efficiency

The property of allocation that maximizes the total surplus of everyone in society

three reasons why equilibrium quantity is the most efficient

Total surplus is maximized, marginal benefit equals marginal cost, and maximum willingness to pay equals minimum willingness to sell