Chapter 7

producer surplus formula

= amount received by sellers - cost to sellers

consumer surplus formula

= value to buyers - amount paid by buyers

A price increase will cause consumer surplus to ________.

decrease

The producer surplus represents the:

difference between the price of the good and the cost to the seller.

Consumer surplus is the:

difference between what the consumer is willing to pay and what the consumer has to pay.

A price increase will cause producer surplus to ________.

increase

cost

the value of everything a seller must give up to produce a good

If the quantity traded in a market is less than the equilibrium quantity:

the value to consumers for additional units is greater than the cost to sellers of producing those units.

Total Surplus can be calculated as follows:

Value to buyers minus cost to sellers.

The producer surplus can be expressed graphically as the area:

above the supply curve and below the price.

The consumer surplus can be expressed graphically as the area:

below the demand curve and above the price of the good.

If a market is not very competitive and/or if there are externalities, we can expect the market outcome:

not to be efficient, and total surplus will not be maximized.

consumer surplus

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

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it

equity

the fairness of the distribution of well-being among the members of society

Total surplus in a market is usually maximized when:

the market is in equilibrium.

willingness to pay

the maximum amount that a buyer will pay for that good

efficiency

the property of a resource allocation of maximizing the total surplus received by all members of society

welfare economics

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