Chapter 7

Consumer Surplus

Even though I was willing to pay as much as $185 for a polaroid camera, I bought a polaroid camera for just $180. - Consumer Surplus - Producer Surplus - Neither

Producer Surplus

I sold a swimsuit for $59, even though I was willing to accept as little as $53 in exchange for it. - Consumer Surplus - Producer Surplus - Neither

Neither

I sold a used record for $26 on OfferUp last week. The next day, someone messaged me offering $61 for it. - Consumer Surplus - Producer Surplus - Neither

Efficiency

Maximizing the total surplus received by all members of society

= 1/2 x base x height

What formula do you use to fine consumer and producer surplus.

Consumer Surplus

is the difference between a buyer's willingness to pay (what the item is worth to the buyer) and what the buyer actually pays.

Producer Surplus

is the difference between the price a seller actually receives for an item and the lowest price at which the seller would be willing to provide the item (the additional costs to the seller of providing another unit of the item).

Total surplus

is the sum of consumer and producer surplus at the equilibrium price and quantity.

Total Surplus

is the surplus that all the individual in an economy-- in this case, consumers and producers--earn.

Welfare economics

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