Consumer and Producer Surplus Lecture

This set of vocabulary flashcards covers concepts from the introduction to consumer surplus, producer surplus, price controls, and market efficiency calculations.

Consumer Surplus (CS)

The area below the demand curve, above the price, at the quantity transacted.

Producer Surplus (PS)

The area above the supply curve, below the price, at the quantity being transacted.

Equilibrium Quantity (Example)

The quantity where demand and supply intersect, which is $400$ in the baseline figure.

Equilibrium Price (Example)

The price where demand and supply intersect, which is $1,500$ in the baseline figure.

Area of a Triangle Formula

$$\frac{1}{2} \times \text{height} \times \text{base}$$

Market Surplus (MS)

The total value of the market calculated by adding consumer surplus and producer surplus together.

Price Ceiling

A price control set below the equilibrium price (e.g., at $1,000$) that restricts the quantity supplied and transactions in the market.

Deadweight Loss (DWL)

The part of the triangle that used to be consumer or producer surplus but now goes to no one due to the market being restricted or "chopped up."

Symmetric Supply and Demand (Coincidence)

A situation where consumer surplus and producer surplus are equal because the intercepts and slopes result in identical areas for both triangles.

Consumer Surplus Calculation (Price Ceiling)

Calculated as the sum of a triangle area $\frac{1}{2} \times 500 \times 200 = 50,000$ and a rectangle area $1,000 \times 200 = 200,000$, totaling $250,000$.

Deadweight Loss (Calculation Example)

The difference between the baseline market surplus ($400,000$) and the market surplus after a price control ($300,000$), which equals $100,000$.