MicroeconomicsLesson 1 of 1 in the course Demand and Supply

Market Surplus, Price Controls, and Demand-Supply Changes

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

This lesson explains how consumer and producer benefits arise in a market and how they combine to show the efficiency of equilibrium. Understanding surplus helps us see what buyers and sellers gain from trade and why the market equilibrium matters.

A situation is economically efficient when it is impossible to improve one party’s situation without imposing a cost on someone else. In a market, efficiency means scarce resources are used to achieve as much benefit as possible and all mutually beneficial trades have been made.

All flashcards

Consumer surplus
The difference between a buyer’s willingness to pay and the price actually paid.
Producer surplus
The difference between the price a seller receives and the minimum price they would accept.
Binding price ceiling
A legal maximum price set below equilibrium, typically causing quantity demanded to exceed quantity supplied.
Deadweight loss
Social surplus lost when an inefficient quantity prevents mutually beneficial trades.
Movement along a curve
A change in quantity demanded or supplied caused by a change in the good’s own price.

Quiz questions

  1. When a price ceiling is binding because it is below equilibrium, which market outcome is typical?Answer: Quantity demanded exceeds quantity supplied.
  2. When a price floor is binding because it is above equilibrium, what is typically true?Answer: Quantity supplied exceeds quantity demanded.
  3. How does deadweight loss differ from a transfer of surplus?Answer: Deadweight loss is surplus that disappears when beneficial trades do not occur.
  4. In a demand-and-supply model, what causes a movement along the demand curve?Answer: A change in the good’s own price, with other determinants held constant.
  5. If demand and supply both shift right, what happens to equilibrium quantity and price?Answer: Quantity increases; the price change depends on the relative sizes of the shifts.

Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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