Chapter 4 - Consumer and Producer Surplus

How Changing Prices Affect Producer Surplus

A rise in the price of a good, producers experience an increase in producer surplus, though no all producers gain the same amount.

Total Producer Surplus

In a market, it is the sum of individual producer surplus of all the sellers of a good in market. The total producer surplus from sales of a good at a given price is the area above the supply curve but below that price.

Private Information

Information about a good that some possess, and others don't

Economic Signal

Is any piece of information that helps people make better market decisions. A signal given by the market price ensures total surplus is maximized by telling people when to buy, sell, or do nothing.

Producer Surplus

Refers both to individual and to total producer surplus

How Changing Prices Affect Consumer Surplus

The total increase in consumer surplus is the sum of the shaded areas. Likewise, a rise in price would decrease consumer surplus by an amount equal to the sum of the shaded areas.

Externalities

actions of individuals sometimes have side effects on the welfare of others that markets don't take into account. Ex: pollution

Property Rights

are the rights of owners of valuable items, to dispose of those items as they choose. One reason why markets work so well

Willingness to Pay

for a good is the maximum price at which he would buy that good

Inefficient Market

if there are missed opportunities some people could be made better off without making other people worse off. Gains in trade are unrealized.

Individual Consumer surplus

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

Total consumer surplus

is the sum of the individual consumer surpluses of all the buyers of a good in a market. It is equal to the area below the demand curve, but about the price.

Cost

it is the lowest price at which the seller is willing to sell a good or service

Consumer Surplus

term is used to refer to both individual and total consumer surplus

Individual Producer surplus

the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the sellers cost.