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