Market Efficiency

Consumer Surplus

The difference between the max price consumers are willing and able to pay for a good or service and the price they actually pay

• The wealth that trade creates for consumers in a market

• Measured in dollars

  • Graphically, consumer surplus is the area below the demand curve and above teh equilibrium price, from 0 to the quantity trade

Welfare economics

A branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being

Producer Surplus

the difference between the price producers recieve for a good or service and the minimum price they are willing and able to accept

• wealth that trade creates for producers in a market

• measured in dollars

  • Graphically, is the area below the equilibruim price and above teh supply curve, from 0 to the quantity traded

Economic surplus

the sum of consumer and producer surplus

• measure of the total welfare, or wealth that trade creates for consumers and producer in a market

  • also called social welfare or total surplus

Deadweight loss

the value of the economic surplus that is forgone when a market is not alllowed to adjust to its competetive equilibrium