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Consumer and Producer Surplus
Test 2 Review
5
Economics
Undergraduate 1
06/18/2012
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Term

Consumer Surplus

 Definition

The difference between the highest price a consumer is willing to pay for a good or a service adn the price the consumer actually pays. 

 

*If consumer surplus is/would be negative, then the consumer does no make the purchase. 

 

 
Term
Producer Surplus
 Definition

Producer Surplus is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually recieves. 

 

Marginal Cost is the additional cost to a firm of producing one more unit of a good or service. MC increases as more units are produced. Since MC increases with production, the price at which firms are willing to sell will also increase with production 
Term
Economic Surplus
 Definition

Economic Surplus is the sum of consumer surplus and producer surplus. 

 

ES= CS + PS
Term
Economic Efficiency 
 Definition
Economic Efficiency is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and economic surplus is maximized. Economic efficiency happens at equilibrium. This means that the market equilibrium is economically effecient. 
Term

Deadweight Loss


 Definition
Deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium. 
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