CHAPTER 7: CONSUMER AND PRODUCER SURPLUS

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8 Terms

1
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Welfare economics

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

2
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Willingness to pay

the maximum amount that a buyer will pay for a good

3
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Consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

  • The area below the demand curve and above the price measures the


4
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Marginal buyer

the buyer who would leave the market first if the price were any higher

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Cost

the value of everything a seller must give up to produce a good

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Producer surplus

the amount a seller is paid minus his cost of production.

  • The area below the price and above the supply curve


7
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Marginal seller

the seller who would leave the market first if the price were lower

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Total surplus

Consumer + Producer suprlus