Market Equilibrium and Consumer and Producer Surplus

Market Equilibrium

Occurs when quantity supplied equals quantity demanded, resulting in a stable market price.

Price Surplus

A situation that occurs when quantity supplied exceeds quantity demanded.

Price Shortage

A situation that occurs when quantity supplied is less than quantity demanded.

Consumer Surplus

The difference between what consumers are willing to pay for a good and the actual market price.

Producer Surplus

The difference between the market price that producers receive for a good and the minimum price they are willing to accept.

Allocative Efficiency

Occurs when resources are used in a way that maximizes total benefit to society at equilibrium.

Total Surplus

The sum of consumer surplus and producer surplus, representing the total net benefit to everyone in the market.

Deadweight Loss (DWL)

Represents lost total surplus and occurs when the market is not at equilibrium.

Increase in Demand

Results in the demand curve shifting to the right, leading to a higher equilibrium price and quantity.

Decrease in Demand

Results in the demand curve shifting to the left, leading to a lower equilibrium price and quantity.

Increase in Supply

Results in the supply curve shifting to the right, leading to a lower equilibrium price and higher equilibrium quantity.

Decrease in Supply

Results in the supply curve shifting to the left, leading to a higher equilibrium price and lower equilibrium quantity.

Simultaneous Shifts

When both supply and demand shift, affecting equilibrium price and quantity based on the magnitude and direction of each shift.