Chapter 6

Price Ceiling

a legal maximum on the price at which a good can be sold

Price Floor

a legal minimum on the price at which a good can be sold

What will cause a increase in consumer surplus?

a technological improvement in the production of the good

All else equal, what happens to consumer surplus if the price of a good increases?

consumer surplus decreases

Cost

is a measure of the sellers willingness to sell

Total Surplus

is equal to producer surplus plus consumer surplus

Sellers Opportunity Cost

measures the value of everything they must give up to produce the good

Welfare Economics

study of how the allocation of resources affects economic well-being

Consumer Surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays

On the graph, total surplus is represented by

the area between the demand and supply curves up to the point of the equilibrium

On a graph, consumer surplus is represented by

the area that is below the demand curve and above the price

Willingness To Pay

the maximum price that a buyer will pay for a good

Efficiency is measured using

total surplus

Consumer Surplus =

value to buyers - amount paid by users

Total Surplus =

value to buyers - cost to sellers

Marginal Buyer

who would be the first to leave the market if the price were any higher