4.5 Key Terms
Key Terms
The amount that individuals would have been willing to pay, minus the amount that they actually paid.
Refers to the amount (price) consumers are willing and able to purchase goods or services at (4.1)
The market equilibrium where the marginal benefit from a good just equals the marginal cost of producing it. At the efficient level of output which is also called the competitive equilibrium, it is impossible to produce greater consumer surplus without reducing producer surplus, and it is impossible to produce greater producer surplus without reducing consumer surplus. (4.2)
The sum of consumer surplus and producer surplus
It is a type of price control where the government sets the maximum price to be charged to sell a good or service
It is a type of price control where the government sets the minimum price to be charged or paid to sell a good or service
The amount that a seller is paid for a good minus the seller’s actual cost.
The amount of some good or service a producer is willing to supply at each price. The supply curve shows the quantity that firms are willing to supply at each price. (4.2)
This method recognizes that who pays the tax is ultimately irrelevant. Instead, the wedge method illustrates that a tax drives a wedge between the price consumers pay and the revenue producers receive, equal to the size of the tax levied. (4.4)
Serves as a starting point for the demand curve. A consumer’s maximum Willingness to Pay is equal to that consumer’s Marginal Benefit (MB). This is useful information if we want to use Marginal Analysis. (4.1)
