Understanding Marginal Cost Curve and Economic Surplus

These flashcards cover key concepts related to the marginal cost curve, producer surplus, economic surplus, and the dynamics of voluntary exchange in markets.

What is the role of the supply curve in a competitive market?

It reflects the producers' willingness to accept or sell, which corresponds to their marginal cost.

Why does the minimum price a seller will accept reflect marginal cost?

Because it covers their costs, including opportunity cost.

What is the equilibrium price in the discussed market example?

$3.

What is producer surplus?

The difference between the price received and the marginal cost incurred by the producer.

How is producer surplus calculated in the given market context?

As the area between the supply curve (marginal cost) and the equilibrium price.

What is the total producer surplus in this example market?

$100.

What do consumer surplus and producer surplus together represent?

Economic surplus.

How is economic surplus defined?

The difference between marginal benefit and marginal cost.

How are gains from trade realized in a transaction?

Both parties gain value from the exchange due to differing willingness to pay.

Why is the notion that markets are zero-sum considered false?

Because both parties can benefit from a trade without one having to lose value.