ECON 201 MIDTERM #2

welfare economics
the study of how the allocation of resources affects economic well-being
willingness to pay
(WTP) the maximum amount that a buyer will pay for a good
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
cost
the value of everything a seller must give up to produce a good
producer surplus
the amount a seller is paid for a good minus the seller’s cost of providing it
Total surplus
value to buyers – cost to sellers
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efficiency
the property of a resource allocation of maximizing the total surplus received by all members of society
equality
the property of distributing economic prosperity uniformly among the members of society
deadweight loss
the fall in total surplus that results from a market distortion, such as a tax