P.S. and C.S.
What is the consumer surplus formula?
Formula = Maximum price consumer is willing to pay - Actual price
OR
Marginal Utility - Market Price
What is market equilibrium?
Point in a supply and demand graph where the demand curve intersects with the supply curve.
What is a synonym of deadweight loss in economics?
Efficency loss.
What is the producer surplus formula?
Price - Marginal Cost
What are the benefits of reaching market equilibirum?
Quantity demanded = Quantity supplied, maximizing economic surplus.
What causes deadweight loss?
Anything preventing maximum economic surplus of being reached, including price not being at equilibrium.
How is consumer surplus represented in the supply and demand graph?
Space between the demand curve and price.
What is the formula for economic surplus?
Consumer surplus + Producer surplus + Tax revenue (if applicable)
Can deadweight loss be a negative value?
No. It can be zero if economic surplus is maximized. However, it can never be a negative value.
How is producer surplus represented in the supply and demand graph?
Space between the supply curve and price.
How is economic surplus represented in a supply and demand graph?
Area that includes total producer and consumer surplus.
Does inefficent allocation of resources ALWAYS create deadweight loss?
Yes. Inefficent allocation = Quantatiy Supplied not matching Quantity Demanded. This would result in a market that lacks equilibrium. Consequently, inefficent allocation of resrouces always creates deadweight loss.
Producer surplus:
Market price - Marginal cost * Equilibrium quantity * 0.5
Consumer surplus -
Marginal Utility - Equilibrium price * Equilibrium quantity * 0.5
What is the formula for calculating economic surplus in a market's supply and demand graph?
Maximum Marginal Utility or Benefit - Marginal cost * equilibrium quantity * 0.5
What is the deadweight loss of a graph with an equilibirum quantity of 20, a quanity supplied of 10, a Marginal Utility of $27 and a Marginal cost of $11?
$27 - $11 = $16
20 - 10 = 10
$16 * 10 = $160
$160 / 2 = $80