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what is a willingness to pay?
a buyers maximum price they are willing to pay — it measures how much someone values each good
what is consumer surplus?
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it — measures the benefit buyers receive from participating in a market
it is a good measure of economic well-being
what does a demand curve show us about consumer surplus?
At any quantity, the price given by the demand curve shows the willingness to pay of the marginal buyer – the buyer who would leave the market first if the price were any higher
it can also be used to measure consumer surplus
The area below the demand curve and above the price measures the consumer surplus in a market
The difference between the willingness to pay and the market price is each buyer’s consumer surplus
The area between the demand curve and a price line is the sum of the consumer surplus of all buyers in the market
how does a lower price affect consumer surplus?
it raises it
what is willingness to sell?
the lowest price someone would accept for their work/to sell their services
what is producer surplus?
the amount a seller is paid minus his cost of production — measures how much a seller benefits from participating in a market
what is a marginal seller?
Marginal seller – the first seller who would leave the market first if the price were lower
what does a supply curve tell us about producer surplus?
The area below the price and above the supply curve measures the producer surplus in a market
Height of the supply curve measures sellers’ costs, and the difference between price and cost of production is each seller’s producer surplus
The area between the price line and the supply curve is the sum of all sellers’ producer surplus
how does a higher price affect producer surplus?
it raises it
what is total surplus?
Total surplus = value to buyers - cost to sellers
The total surplus in a market is the total value to buyers of the goods, measured by their willingness to pay, minus the total cost to sellers of providing those goods.
