Key Concepts and Summary
Glossary
consumer surplus
the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid
deadweight loss
the loss in social surplus that occurs when a market produces an inefficient quantity
economic surplus
see social surplus
producer surplus
the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept
social surplus
the sum of consumer surplus and producer surplus
Review Questions
What is consumer surplus? How is it illustrated on a demand and supply diagram?
What is producer surplus? How is it illustrated on a demand and supply diagram?
What is total surplus? How is it illustrated on a demand and supply diagram?
What is the relationship between total surplus and economic efficiency?
What is deadweight loss?
What term would an economist use to describe what happens when a shopper gets a “good deal” on a product?
Explain why voluntary transactions improve social welfare.
Why would a free market never operate at a quantity greater than the equilibrium quantity? Hint: What would be required for a transaction to occur at that quantity?
This lesson is part of:
Demand and Supply