Chapter 4 - Consumer And Producer Surplus Flashcards
1
Q
What does the consumer and producer surplus help us calculate
A
How much benefit producers and consumers receive from the market
How the welfare of consumers and producers is affected by changes in prices
2
Q
What is a willingness to pay
A
The maximum price at which a consumers willing to buy that good
3
Q
What is the total consumer surplus
A
The sum of all individual consumer surpluses
4
Q
What is consumer surplus
A
The area above the price but below the demand curve
5
Q
What is a producer surplus
A
The difference between market price and the price at which firms are willing to supply the product
6
Q
Why are competitive markets usually efficient
A
- They allocate consumption of the good to the potential buyers who most value it
- The allocate sales to the potential sellers who most value the right to sell the good
- They ensure that all transactions are mutually beneficial
- They ensure that no mutually beneficial transactions are missed
7
Q
What happens when a market is inefficient
A
The market fails
