Microeconomics: Consumer and Producer Surplus Ch.7

These flashcards cover key vocabulary terms related to consumer and producer surplus, market efficiency, and welfare economics.

Consumer Surplus

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

Producer Surplus

The difference between what producers are paid for a good and the cost of producing it.

Willingness to Pay (WTP)

The maximum amount a buyer is willing to pay for a good.

Marginal Buyer

The buyer who would leave the market if the price were any higher.

Total Surplus

The sum of consumer surplus and producer surplus, representing the total benefit to society.

Market Efficiency

A situation where the allocation of resources maximizes total surplus.

Welfare Economics

The study of how the allocation of resources affects economic well-being.

Allocative Efficiency

A state of the economy in which production represents consumer preferences, maximizing total surplus.

Invisible Hand

A term by Adam Smith describing how individuals pursuing their own self-interest can lead to positive societal outcomes.

Economic Well-being

The overall economic prosperity of individuals in society as measured by total surplus.