2.5 Consumer and Producer Surplus Review

These flashcards cover key concepts related to consumer and producer surplus, their significance, calculation methods, and how market dynamics affect economic welfare.

Consumer Surplus

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

Economic Welfare

Represents the overall economic benefit consumers receive from transactions in a market.

Demand Curve

Graphs the relationship between the price of a good and the quantity demanded by consumers.

Market Efficiency

How effectively a market allocates resources based on consumer preferences.

Willingness to Pay

The maximum price that consumers are prepared to pay for a good or service.

Producer Surplus

The difference between the market price received by producers and the minimum price they are willing to accept.

Allocative Efficiency

A state of the market where resources are distributed in such a way that maximizes consumer and producer surplus.

Price Elasticity of Demand

Measures how much the quantity demanded of a good changes in response to a change in price.

Taxation Impact on Surplus

Taxes generally decrease consumer surplus by raising prices and reduce producer surplus by lowering net profits.

Subsidies Impact on Surplus

Subsidies can increase consumer surplus by lowering prices and boost producer surplus by providing higher effective prices.

Graphical Representation of Consumer Surplus

The area above the market price and below the demand curve represents consumer surplus.

Impact of Technology on Surplus

Technological advancements can lower production costs, resulting in higher producer surplus.

Market Dynamics

Changes in market conditions such as price adjustments that influence consumer and producer surplus.

Luxury Goods Market

A market characterized by high elasticity of demand, where price reductions significantly increase consumer surplus.

Perfect Competition

A market structure with many buyers and sellers leading to high consumer surplus due to competitive pricing.

Monopoly

Market structure where a single seller dominates, often resulting in reduced consumer surplus.

Oligopoly

A market structure characterized by a few dominant sellers whose price-setting behavior affects consumer surplus.

Consumer Preferences Impact

Changes in consumer tastes can lead to shifts in the demand curve, altering consumer surplus.

Market Shifts

Changes in the market that can influence consumer and producer surplus, such as economic conditions.

Equilibrium Point

The intersection of the demand and supply curves, indicating market price and quantity available.