Consumer and Producer Surplus

Vocabulary

ceteris paribus

a Latin term meaning "all other things being equal"; all other variables are constant

consumer surplus

the difference between the maximum price that an individual consumer (or the market) would be willing to pay to receive a good or service and the actual market price that they have to pay

deadweight loss

loss to the economy due to either oversupply or undersupply, caused by resources being used inefficiently

demand curve

a line on a graph showing different combinations of quantities demanded and prices, which can also be used to show the maximum price that an individual consumer (or the demand side of the market) would be willing to pay

demand schedule

a table that shows the quantity demanded of a good at different prices, which can also be used to show the maximum price that a consumer would be willing to pay

highly competitive market

a market in which there are many buyers and sellers, which is expected to be a highly efficient market and has the following attributes: 1. neither individual firms nor consumers has much power in setting prices; 2. firms are selling a good/service that is largely standardized

opportunity cost

the value or benefit of the next best alternative given up when making a choice

oversupply

a situation in which quantity supplied is greater than quantity demanded at the equilibrium price in the market, resulting in producer surplus being reduced; causes efficiency loss for the individual market and deadweight loss for the overall economy

producer surplus

the difference between the minimum price at which an individual supplier (or the market) would be willing to sell a good or service and the actual market price that they receive

quantity demanded

the quantity of a good or service that consumers are willing and able to buy at a specific price

quantity supplied

the quantity of a good or service that producers offer for sale at a specific price

seller's cost

the minimum price at which an individual producer is willing to sell, which only covers marginal cost of production

supply curve

a graphical representation that shows the quantity supplied at different prices, which can also be used to show the minimum price of a good or service that an individual producer (or the supply side of the market) would need in order to produce the good or service

supply schedule

a table showing the quantity supplied of a good at different prices, which can also be used to show the minimum price a producer would be willing to sell at

total consumer surplus

the sum of all individual consumer surpluses

total surplus

the total net gain to society from trading in a market; the sum of consumer and producer surplus and government revenue, if it exists

undersupply

a situation in which quantity supplied is less than quantity demanded at the equilibrium price in the market, resulting in both consumer and producer surplus being reduced; causes efficiency loss for the individual market and deadweight loss for the overall economy