Consumer Surplus, Producer Surplus, and Deadweight Loss

Consumer Surplus

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

Willingness to pay

the maximum amount that a buyer will pay for a good

The area below the demand curve and above the price measures what?

The consumer surplus

Consumer surplus on a graph

What does consumer surplus measure?

the benefit buyers receive (as they perceive it) from participating in a market

Producer Surplus

the amount a seller is paid for a good minus the seller's cost of providing it

The area below the price and above the supply curve measures what?

the producer surplus

Producer surplus on a graph

Efficiency

the property of resource allocation of maximizing the total surplus received by all members of society

Market Efficiency

when a market is capable of producing output high enough to meet consumer demand

Total Surplus

consumer surplus + producer surplus

Equilibrium

efficient allocation of resources

Deadweight Loss

the fall in total surplus that results from a market distortion, such as a tax

Deadweight loss on a graph