Consumer Surplus and Market Efficiency

These flashcards cover key concepts related to consumer and producer surplus, market efficiency, and economic welfare as discussed in the provided lecture notes.

Consumer Surplus (CS)

The difference between what consumers are willing to pay for a good and what they actually pay.

Producer Surplus (PS)

The difference between what producers receive for a good and their costs of production.

Willingness to Pay (WTP)

The maximum amount that a buyer is prepared to pay for a good.

Willingness to Sell (WTS)

The minimum amount a seller is willing to accept for a good.

Total Surplus

The sum of consumer surplus and producer surplus, measuring overall economic welfare.

Marginal Buyer

The buyer whose willingness to pay is equal to the market price.

Allocation of Resources

The process of deciding how resources are distributed among different uses.

Market Efficiency

A situation in which resources are allocated in a way that maximizes total surplus.

Market Failure

A situation where unregulated markets fail to allocate resources efficiently.

Equilibrium

The point at which supply equals demand, maximizing total surplus.

Benevolent Social Planners (BSP)

Hypothetical entities that aim to maximize economic well-being for all members of society.

Opportunity Cost

The value of the next best alternative that is forgone when making a choice.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded.

Supply Curve

A graph showing the relationship between the price of a good and the quantity supplied.

Externalities

Costs or benefits of a market activity that affect third parties who did not choose to incur those costs or benefits.

Invisible Hand

A term used by Adam Smith to describe the self-regulating nature of a free market.