Principles of Microeconomics: Consumers, Producers, and the Efficiency of Markets

A collection of vocabulary flashcards to help understand key concepts in microeconomics, particularly regarding consumer and producer surplus, willingness to pay, and market efficiencies.

Consumer Surplus (CS)

The monetary difference between what a consumer is willing to pay for a good and the price actually paid.

Producer Surplus (PS)

The difference between the price a seller receives and the opportunity cost of production.

Willingness to Pay (WTP)

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

Total Surplus (TS)

The sum of consumer surplus and producer surplus, measuring the total gains from trade in a market.

Welfare Economics

The study of how the allocation of resources affects the economic well-being of both consumers and producers.

Marginal Willingness to Pay

The maximum amount a consumer will spend for an extra unit of a good.

Market Demand Curve

A graphical representation that reflects the maximum willingness to pay of consumers at various quantities.

Tax Wedge

The difference between the price buyers pay and the price sellers receive due to taxation.

Area Under Demand Curve

Represents an individual’s consumer surplus, being the area above the price level up to the quantity bought.

Market Allocation of Resources

In a market economy, the distribution of resources is determined by the interactions of self-interested buyers and sellers.

Perfect Competition

A market structure where the market outcome efficiently maximizes total surplus.

Efficiency of Markets

A condition where resources are allocated in a way that maximizes total surplus.

Opportunity Cost of Production

The cost of forgoing the next best alternative when making a decision in production.

Economic Well-Being

The general term describing the level of financial health, happiness, and material success experienced by individuals, entrepreneurs, and society as a whole.

Expenditure on Goods

The total amount of money spent by consumers to purchase goods, influencing market demand.