Econ Chapter 7

a lower price does what to consumer surplus?-

raises consumer surplus; existing buyers increase in consumer surplus and new buyers enter the marketplace and increase the consumer surplus

a higher price does what to producer surplus?-

raises it; existing sellers increase in producer surplus and new sellers enter the market, increasing producer surplus

welfare economics

study of hoow the allocation of resources affects economic well being

total consumer surplus

the area below the demand curve and above the price (CS= WTP-P; the sum of the consumer surplus of all buyers in the market)

cost

value of everything a seller must give up to produce a good; measure of willingness of sell

consumer surplus (CS)

value to buyers- amount paid by buyers

total surplus

CS+PS (value to buyers- cost to sellers)

decentralized

determined by interactions of many self-interested buyers and sellers

equality

distribute economic prosperity uniformly among the members of society (every member of society gets an equal slice of the pie?)

willingness to pay

maximum amount that a buyer will pay for a good or how much that buyer values the good

total surplus

measure of society's well-being and is used to consider whether the market's allocation is efficient

the benevolent social planner

all knowing, all powerful, well intentioned dictator; wants to maximize the economic well-being of everyone in society; evaluates market outcomes

efficiency

allocation of resources maximizes total surplus (is the pie as big as possible?)

consumer surplus

amount a buyer will pay for a good minus the amount the buyer actually pays (benefits buyers receive from participating in a market)

producer surplus

amount a seller is paid for a good minus the seller's cost of providing it; price received minus willingness to sell

producer surplus (PS)

amount received by sellers- cost to sellers