Microeconomics; Chapter 4- Economic efficiency, Government Price setting, and taxes

Consumer Surplus

The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays.

-Consumer Surplus (CS) measures the dollar benefit consumers receive from buying goods or services in a particular market.

Marginal Benefit

The additional benefit to a consumer from consuming one more unit of a good or service

The total amount of CS is equal to...

the area below the demand curve and above the market price

Producer Surplus

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

- measures the dollar benefit firms receive from selling goods or services in a particular market.

The total amount of PS of a market..

is equal to above the supply curve and below the market price

Economic surplus

Consumer Surplus+ Producer Surplus

Deadweight loss

When supply and demand are not in equilibrium ( it is the reduction; for example a baker makes 100 loaves of bread, and only sells 80 the other 20 will go moldy and be thrown away- this is the deadweight loss)

price floor

Minamum price that sellers may receive
- example minimum wage
-Price floors result in surpluses, which leads to the existence of deadweight loss.

price ceiling

Max price that sellers can charge
- Result in shortages, which leads to DWL
- ( paying rent; Rent control puts a price ceiling on the maximum rent that landlords can charge for an apartment.)

Tax incidence

The actual division of the heavy load of a tax between buyers and sellers in a market.