Consumer and Producer Surplus

These flashcards cover key concepts related to consumer and producer surplus, economic efficiency, and market interventions.

Economic Surplus

The allocation of resources that affects economic well-being, consisting of consumer surplus, producer surplus, and total surplus.

Willingness to Pay (WTP)

The maximum amount a buyer is willing to pay for a good, reflecting how much the buyer values it.

Consumer Surplus (CS)

The difference between what a buyer is willing to pay for a good and what they actually pay.

Total Consumer Surplus

The area under the demand curve above the price, representing the total gains from trade for all consumers.

Producer Surplus (PS)

The difference between the price received by sellers and their costs, representing the net gain from selling a good.

Total Surplus

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

Price Ceiling

A legal maximum price at which a good can be sold, potentially leading to shortages and affecting consumer and producer surplus.

Price Floor

A legal minimum price at which a good can be sold, potentially leading to surpluses and affecting consumer and producer surplus.

Deadweight Loss (DWL)

The loss of economic efficiency when the equilibrium outcome is not achievable due to market intervention.

Efficiency

A condition where resources are allocated in a way that maximizes total surplus, with goods consumed by those who value them most.