Market Efficiency and Consumer Surplus in Economics

Labor Theory of Value

Value determined by labor and capital costs.

Subjective Theory of Value

Value based on individual consumer perceptions.

Marginalism

Focus on incremental changes in decision-making.

Utility

Satisfaction or benefit derived from a product.

Reservation Price

Maximum price a consumer is willing to pay.

Reserve Price

Minimum price a seller is willing to accept.

Total Surplus

Sum of consumer and producer surplus.

Market Prices

Prices determined by consumer judgments and demand.

Consumer Judgment

Individual assessment of product value at purchase.

Price Elasticity

Responsiveness of quantity demanded to price changes.

Demand Signal

Consumer behavior indicating market price adjustments.

Supply Consideration

Factors suppliers weigh when setting prices.

Sales Figures

Data reflecting consumer purchases of products.

Economic Theorists

Scholars who analyze and interpret economic principles.

Classical Economists

Early economists focused on production costs.

Marginal Utility

Additional satisfaction from consuming one more unit.

Market Economy

System where prices are determined by supply and demand.

Price Comparison

Evaluating product prices against alternatives.

Thirst Example

Illustrates subjective value in consumer decision-making.

Vendor Pricing

Price set by sellers based on market conditions.

Consumer Decision

Choice made based on perceived product value.

Economic Signals

Indicators that guide market participants' decisions.

Price Fairness

Consumer perception of whether a price is just.

Competitive Pricing

Setting prices based on competitor offerings.

Market Judgments

Collective consumer decisions shaping product prices.

Price Sensitivity

Degree to which demand changes with price.

Value Assessment

Evaluation of worth based on personal criteria.

Demand

Consumer desire for a product exceeding supply.

Supply

Total amount of a product available for sale.

Market Price

Average price charged by all suppliers.

Consumer Surplus

Difference between reservation price and market price.

Utility

Satisfaction gained from consuming a product.

Potential Buyers

Individuals considering purchasing a product.

Market Efficiency

Effectiveness of a market in maximizing consumer surplus.

Price Increase

Raising prices due to high demand.

Price Decrease

Lowering prices when supply exceeds demand.

Economic Policy

Strategies to enhance consumer financial abilities.

Job Creation

Policies aimed at increasing employment opportunities.

Inflation Control

Measures to keep inflation rates low.

Foreign Trade Agreements

Contracts to enhance international trade relations.

Bicycle Market Example

Illustration of consumer behavior in used bike sales.

Graph Interpretation

Analyzing curves representing buyer reservation prices.

Businessperson

Consumer willing to pay $500 for a bike.

Banker

Consumer willing to pay $250 for a bike.

Accountant

Consumer willing to pay $200 for a bike.

Nurse

Consumer willing to pay $150 for a bike.

Retiree

Consumer willing to pay $100 for a bike.

Total Consumer Surplus

Aggregate surplus from all consumers in a market.

Market Dynamics

Interactions between supply, demand, and pricing.

Short Run

Immediate market response to demand changes.

Long Run

Market adjustments over an extended period.

Price Elasticity

Sensitivity of demand to price changes.

Consumer Behavior

Patterns in consumer purchasing decisions.

Producer Surplus

Difference between market price and reserve price.

Reservation Price

Maximum price consumer is willing to pay.

Reserve Price

Minimum price supplier is willing to accept.

Banker's Surplus

Banker's consumer surplus of $90.

Accountant's Surplus

Accountant's consumer surplus of $40.

Businessperson's Surplus

Businessperson's consumer surplus of $340.

Market Price

Current selling price of a product.

Surplus Calculation

Total surplus equals $340 + $90 + $40.

Bids Entry

New bids from banker and accountant at $160.

Potential Market

Market where consumers are willing to buy.

Actual Consumer Market

Market where transactions actually occur.

Step-like Curve

Graph representation of reserve prices.

Bartender's Reserve Price

Bartender's minimum price is $50.

Carpenter's Reserve Price

Carpenter's minimum price is $100.

Secretary's Reserve Price

Secretary's minimum price is $200.

Lawyer's Reserve Price

Lawyer's minimum price is $300.

Engineer's Reserve Price

Engineer's minimum price is $400.

Total Producer Surplus

Sum of surpluses for all sellers.

Bartender's Surplus Calculation

$160 - $50 = $110 for bartender.

Carpenter's Surplus Calculation

$160 - $100 = $60 for carpenter.

Total Producer Surplus Calculation

$110 + $60 = $170 total producer surplus.

Market Efficiency

Optimal allocation of resources in a market.

Horizontal Dotted Line

Represents a fixed price level on graph.

Graph Interpretation

Visual representation of market dynamics.

Surplus Areas

Graph areas representing consumer and producer surplus.

Market Dynamics

Interactions between supply and demand in markets.

Bartender's Surplus

The surplus amount for the bartender is $110.

Carpenter's Surplus

The surplus amount for the carpenter is $60.

Reserve Price

Minimum price a supplier is willing to accept.

Market Price

Current price at which goods are sold.

Consumer Surplus

Difference between what consumers pay and their willingness to pay.

Producer Surplus

Difference between what producers receive and their minimum acceptable price.

Total Surplus

Sum of consumer and producer surpluses in a market.

Policy Redistribution

Adjusting surplus distribution for economic equity.

Tourism Revenue Strategy

Encouraging competition to lower flight prices in Charleston.

Safe Air

Airline competitor encouraged to start direct flights.

Tax Rebates on EVs

Financial incentives for purchasing electric vehicles.

Electric Car Rebates

Up to $7,500 for new EVs from governments.

Used EV Rebates

Up to $4,000 for used electric vehicles.

Market Competition

Increased rivalry among suppliers to benefit consumers.

Environmental Impact

Consequences of gas cars on health and climate.

Oil Dependency

Reliance on foreign oil sources like OPEC.

Consumer Affordability

Making products accessible to more buyers.

Surplus Improvement

Enhancing one side's surplus without harming the other.

Direct Flights

Non-stop airline routes to a destination.

Economic Policymaking

Using economic data to inform policy decisions.

Charleston Airline Problem

Limited flights leading to higher prices.