Consumer surplus and demand curve, Producer surplus and supply curve, Gains from trade

equilibrium

the quantity demanded equals the quantity supplied

efficiency

- about how to achieve goals, not what those goals are -> addresses the best way to achieve a goal once it has been determined

consumer surplus

- term is often used to refer both to individual and to total consumer surplus

producer surplus

- term used to refer both to individual and to total producer surplus

a seller's cost

- the lowest price at which he or she is willing to sell a good

consumer's willingness to pay (for a good)

- the maxium price at which he or she would buy that good

Individual consumer surplus

- the net gain to an individual buyer from the puirchase of a good. It is equal to the difference between the buyer's willingness to pay and the price paid. > Individual consumer surplus = Willingness to pay - Price paid

Individual producer surplus

- the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller's cost > Individual producer surplus = Price received - Cost

property rights

- the rights of owners of valuable itedms, whether resources or goods, to dispose of those items as they choose

total consumer surplus

- the sum of the individual consumer surpluses of all the buyers of a good in a market

total producer surplus

- the sum of the individual producer surpluses of all the sellers of a good in a market

total surplus (generated in a market)

- the total net gain to consumers and producers from trading in the market. It is the sum of the producer and the consumer surplus > total surplus = producer surplus + consumer surplus

inefficient (market or economy)

- there are missed opportunities: > some people could be made better off without making other people worse off

general rule (for determining the total producer suprlus from sales of a good)

The total producer surplus from sales of a good at a given price is the area above the supply curve but below that price.

general principle

The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price.

economic signal

any piece of information that helps people make better economic decisions

market failure

occurs when a market fails to be efficient 1. Monopoly (price setter) 2. externalities (e.g. pollution) 3. information problem (lemon's)