Consumer and Producer Surplus

These flashcards cover key concepts from the lecture on Consumer and Producer Surplus, providing definitions essential for understanding market transactions.

Consumer Surplus

The net gain to an individual buyer from the purchase of a good, measured as the difference between their willingness to pay and the actual price paid.

Producer Surplus

The net gain to a seller from selling a good, calculated as the difference between the price received and the seller's marginal cost.

Willingness to Pay

The maximum price at which a consumer would buy a good.

Individual Consumer Surplus

The benefit received by a single consumer from purchasing a good, quantified as the difference between willingness to pay and the market price.

Total Consumer Surplus

The sum of individual consumer surpluses for all consumers in the market.

Marginal Cost

The lowest price at which a seller is willing to sell a good.

Total Producer Surplus

The sum of individual producer surpluses of all sellers of a good.

Market Equilibrium

The point at which the quantity of goods supplied equals the quantity of goods demanded, maximizing total surplus.

Market Failure

Situations where the market does not efficiently allocate resources, resulting in loss of total surplus.

Efficiency in the Market

Achieved when total surplus is maximized, ensuring optimal distribution of resources.