Chapter 4 Appendix: CS, PS, and Market Efficiency

A set of vocabulary flashcards covering key concepts from the lecture notes on consumer surplus, producer surplus, and market efficiency.

Consumer Surplus (CS)

The area that is above the price level and below the demand curve.

Producer Surplus (PS)

The area that is below the price level and above the supply curve.

Total Surplus (TS)

The sum of Consumer Surplus and Producer Surplus, represented as TS = CS + PS.

Equilibrium Price (P*)

The price at which the quantity demanded and quantity supplied are equal.

Deadweight Loss (DWL)

The net loss of consumer and producer surplus from underproduction or overproduction of a product.

Binding Price Ceiling

A price set below the equilibrium price (Pc < P*) leading to under-production.

Binding Price Floor

A price set above the equilibrium price (Pf > P*) leading to over-production.

Efficiency Loss

A reduction in total economic surplus due to market distortions such as price controls.

Shifts in Consumer Surplus

Changes in the area above the price level and below the demand curve based on P*.

Shifts in Producer Surplus

Changes in the area below the price level and above the supply curve based on P*.