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consumer surplus
benefit consumers get from being able to purchase a good (@ a cheaper price than they originally wanted)
WTP - P
producer surplus
benefit sellers get from being able to sell a good (@ a higher price than they originally wanted)
P - cost
willingness to pay
the max. price at which a consumer is willing to buy a good
P > WTP → won’t buy
P = WTP → indifferent to buying or not buying
P < WTP → will buy
on a demand curve, a consumer’s WTP becomes a horizontal segent @ that price
individual consumer surplus
the net gain to an individual buyer from the purchase of a good
= WTP - price paid
total consumer surplus
sum of indiv. consumer surplus of all the buyers of a good in a market
area below demand curve, but above price
seller’s cost
the min. price at which a seller is willing to sell a good
individual producer suplus
the net gain to an individual seller from selling a good
= price received - seller’s cost
total producer surplus
sum of indiv. producer surplus of all the sellers of a good in a market
area above supply curve, but below price
real cost of a good
what you must give up to get it
t or f: producer surplus = profit
f: more costs involved in profit
