EC120 Study Guide - Midterm Guide: Laffer Curve, Deadweight Loss, Economic Surplus
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EC120 Full Course Notes
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Consumer surplus (cs): amount buyer is willing to pay amount they actually pay: total cs equals the area under the demand curve above the price, from 0 to q. 2)those paying pay more (gap between price paid and wtp is lower) Producer surplus (ps): amount seller is paid for a good cost: total ps is area above supply curve and below the price, from 0 to q. 2)those who are selling, sell for less (gap between cost and price is smaller) *same picture inverted: cs measures the benefit to buyers, ps measures the benefit to sellers, ts measures total gains from trade (cs+ps, larger total surplus is better, since ts is measure of society"s well being. Total surplus: value to buyers cost to sellers. ->raising or lowering the quantity of a good would not increase total surplus. (it"s at it"s highest) ->the goods are being produced by the producers with lowest cost. Tax revenue = tax x quantity sold (rectangle)
