AP Econ - Chapter 7: Consumers, Producers, and the Efficiency of Markets
willingness to pay
the maximum amount that a buyer will pay for a good
why does a decrease in price increase consumer surplus?
the original buyers in the market get more consumer surplus new members also get consumer surplus
what is total surplus?
the sum of consumer and producer surplus
what area on a supply and demand graph represents total surplus?
the total area between supply and demand curves up to the point of equilibrium
why does a higher price raise producer surplus?
-the original sellers get more for what they sell -new sellers come in because they are willing to produce the good at the higher price
what are the two ways producer surplus can be increased?
1. increase in price 2. decrease in cost
what does the height on the demand curve (with the stairs) show?
the willingness to pay of the marginal buyer
what are the two ways to increase consumer surplus?
1. price decrease 2. greater value placed on the good or service
can producers have different costs with the same exact supplies? why or why not?
they can have different costs because they all value their time differently
what is the area of the producer surplus?
area below the price and above the supply curve
consumer surplus
a buyer's willingness to pay minus the amount the buyer actually pays
what area on the demand curve measures consumer surplus?
below the demand curve, above the price
from what standpoint is consumer surplus measured?
from the eyes of the buyers
what does willingness to pay measure?
how much a buyer values a good
what does a lower market price do to the demand?
it attracts more buyers, so it increases
what is producer surplus?
it measures the benefit to sellers of participating in a market
producer surplus (actual measurement)
the amount a seller is paid for a good minus the seller's cost of providing it
what is consumer surplus?
the benefits buyers receive from participating in a market
what does the height of the supply curve show?
the cost of the marginal seller
what is the consumer surplus at a buyer's willingness to pay?
zero dollars and zero cents, girly pop