Chapter 4: Consumer and Producer Surplus

consumer surplus

a term often used to refer both to individual consumer surplus and total consumer surplus.

producer surplus

a term often used to refer both to individual producer surplus and to total producer surplus.

economic signal

any piece of information that helps people make better economic decisions.

inefficient

describes a market or economy in which there are missed opportunities: some people could be made better off without making other people worse off.

market failure

occurs when a market fails to be efficient.

cost

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

willingness to pay

the maximum price a consumer is prepared to pay for a good.

individual consumer surplus

the net gain to an individual buyer from the purchase of a good; equal to the difference between the buyer's willingness to pay and the price paid.

individual producer surplus

the net gain to an individual seller from selling a good; equal to the difference between the price received and the seller's cost.

property rights

the rights of owners of valuable items, 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

the total net gain to consumers and producers from trading in a market; the sum of the producer surplus and the consumer surplus.