BUSAD 120 Chapter Notes - Chapter 5: Economic Surplus, Opportunity Cost
Document Summary
Remember that our ultimate goal is to be able to say something about the desirability of a market outcome. A market outcome is more desirable, the higher is the wellbeing of market participants. Consumer surplus is a measure of consumers" wellbeing. Consumer surplus measures the benefit that buyers receive from a good as the buyers themselves perceive it. Perceived because it depends on the buyer"s wtp, which in turn depends on how much the buyer herself likes a good cs depends on the preferences of buyers. If we assume that consumers are the best judges of the benefits they receive from a good, then cs is a good measure of consumer wellbeing. We now turn to the benefits that producers (sellers) receive from participating in a market. The measure we will use to quantify those benefits is called producer surplus. Producer surplus (ps) is the amount a seller is actually paid minus the seller"s cost.
