Consumer and Producer Surplus

These flashcards cover key concepts regarding consumer surplus, producer surplus, and overall market efficiency based on the lecture notes.

Consumer Surplus

The gain to an individual buyer from the purchase of a good; the difference between the price paid and what the buyer is willing to pay.

Producer Surplus

The difference between market price and the price at which firms are willing to supply the product.

Total Surplus

The sum of producer surplus and consumer surplus, illustrating the total benefits to society from production and consumption.

Inefficient Market

A market situation where resources are not allocated in the most effective manner, leading to missed opportunities.

Economic Signals

Information that helps people make better economic decisions; prices are the most important signals in a market economy.

Individual Consumer Surplus

The surplus experienced by an individual buyer, calculated as the difference between the maximum price they are willing to pay and the market price.

Total Consumer Surplus

The sum of the individual consumer surpluses for all buyers in a market.

Maximum Willingness to Pay

The highest price a consumer is willing to pay for a good.

Property Rights

The rights of owners of valuable items to dispose of those items as they choose, which are crucial for effective market functioning.

Market Failure

A situation in which the allocation of goods and services is not efficient, often due to market power, externalities, or other constraints.

Consumer Surplus Rise with Price Drop

Consumer surplus increases when the price of a good decreases, as more buyers can purchase at lower prices.