AP Microeconomics Unit 3 Chapter 7 (no deadweight loss yet)

Consumer surplus (CS)

the difference between what someone is willing to pay and what they buy it for

Willingness to pay

The maximum price you are willing to pay for something

Where is total revenue?

The rectangle under CS

Marginal Benefit (MB)

The value of the next unit of the good to the next buyer

Producer Surplus (PS)

the difference between the price of a good and what it costs the producer to make the good

Willingness to sell

Minimum price a seller is willing to sell a good for

Marginal cost (MC)

The cost of producing the next unit of a good

Total surplus (TS)

Total area between demand and supply curves up to the quantity that is bought and sold.

Who is on the demand curve from 0 to equilibrium quantity?

Consumers who value the good more than the price

Who is on the demand curve past equilibrium quantity?

Consumers who value the good less than the price

Who is on the supply curve from 0 to equilibrium quantity?

Producers whose costs are less than the price

Who is on the supply curve past equilibrium quantity?

Producers whose cost to produce a good is more than the price

Efficiency

The property of allocation that maximizes the total surplus of everyone in society

What are the three reasons why equilibrium quantity is most efficient?

1. Total surplus is maximized

2. Marginal benefit equals marginal cost

3. Maximum willingness to pay equals minimum willingness to sell

What are the two assumptions?

1. Perfect competition

2. No externalities