ap economics: module 49 terms

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