Consumer Surplus and Producer Surplus

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what is price ceiling?

Legally determined maximum price that sellers charge. Eg, Rent control

What happens to the price of good and service in a competitive market?

Price adjusts to ensure that the quantity demanded equals the quantity supplied. Meaning equilibrium is always achieved. Note: this is the case whenever the market is not interrupted by gov taxes.

What is the key reason for the demand curve curving upwards?

The marginal cost of producing a good increases as more of the good is produced during a given period of time. Increasing marginal cost is the key reason that supply curves are upward sloping.

Another way of looking at producer and consumer surplus

consumer surplus in the market can be looked at as the total benefit consumers receive minus the total amount that they have must pay to buy the goods and service. Producer surplus, also, can be viewed as the total amount firms receive from consumers minus the cost of producing the good or service.

what is another name of total surplus?

economic surplus

What is marginal benefit?

the additional benefit a consumer receive from consuming one more unit of a good or service.

The total amount of consumer surplus in a market is equal to the area below the demand curve and above the market price.

see diagram for example

What is consumer surplus?

the total benefit consumers receive from buy goods in a market. Mathematically, consumer surplus is seeing as the Price of actual good minus price the consumer paid for the good.

What happens when the government introduces a price ceiling or price floor?

the total economic surplus is reduced .

What is Producer surplus ?

the total monetary benefit sellers receive from selling goods or services in a market

Who mostly benefit from price ceilings ?

Consumers

Who mostly benefits from a price floor?

Sellers

another way to look at the demand and supply curves

Supply curve shows the marginal benefit for consumers in a market and supply curve shows the marginal cost of production.

How to locate the area for producer surplus in a market?

The total area above the market supply curve and below the market price.

Marginal Cost refers to Producers in the market. What is Marginal cost?

This is the additional cost to a

Deadweight Loss

This occurs when the the market is not at competitive equilibrium. DWL reduces the total economic surplus.

What is a competitive market?

a market with many buyers and many sellers

Where on the demand and supply curve graph does the marginal benefit equals the marginal cost?

at the point of equilibrium: this is the point of total economic efficiency.

What is Price Floor?

legally determined minimum price that sellers may receive. Eg form products such as milk

what is producer surplus?

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.


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