Economics » Demand and Supply » Demand, Supply, and Efficiency

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?


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