module 6 - surplus and welfare

efficiency and equality

either:

• minimize the efficiency cost of promoting equality

• use gains from efficiency to fund redistribution

consumer surplus (CS)

difference between what a consumer is willing to pay for and what they actually pay

• extra benefit or savings a buyer gets from a purchase

producer surplus

difference between the price a seller actually receives and the min amount they would be willing to accept to produce or sell a good

• extra benefit a seller gets by selling at a market price that’s higher than their cost

market surplus

when the quantity supplied of a good or service is greater than the quantity demanded at a given price

price floor with consumer + producer surplus

price ceiling with producer + consumer surplus

deadweight loss

loss of total surplus (consumer + producer) that occurs when a market is not operating at max efficiency

• taxes

• subsidies

• price controls

• monopolies

social surplus

sum of consumer surplus and producer surplus

total surplus

the sum of consumer surplus, producer surplus, and government revenue (if it exists)