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
