Economic Concepts: Consumer Surplus, Producer Surplus, and Market Efficiency

These flashcards cover essential concepts related to consumer and producer surplus as well as market efficiency.

Willingness to Pay

The maximum amount that a buyer will pay for a good, representing how much the buyer values the good.

Consumer Surplus

The difference between the maximum amount a buyer is willing to pay and the actual price paid; measured as the area of a triangle beneath the demand curve.

Marginal Buyer

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

Producer Surplus

The amount a seller is paid for a good minus the seller’s cost of providing it.

Total Surplus

The sum of consumer surplus and producer surplus; represents the total economic welfare generated by the allocation of resources.

Efficiency

The allocation of resources that maximizes total surplus received by all members of society.

Market Equilibrium

The point at which supply and demand curves intersect, leading to an efficient allocation of resources.

Inefficient Markets

Markets that do not allocate resources efficiently, often due to third-party involvement or negative externalities.

Benevolent Social Planner

An all-knowing, intentioned planner who aims to maximize the economic well-being of everyone in society.