ECON 200 Chapter Notes - Chapter 5: Ebay, Deadweight Loss, Economic Surplus
25 Feb 2015
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Willingness to pay (reservation price)- the maximum price that a buyer would be willing to pay for a good or service. Willingness to sell- the minimum price that a seller is willing to accept in exchange for a good or service. Willingness to pay and the demand curve. Surplus- a way of measuring who benefits from transactions and by how much. Difference between the price at which a buyer or seller would be willing to trade and the actual price. Consumer surplus- the net benefit that a consumer receives from purchasing a good or service, measured by the difference between willingness to pay and the actual price. Add up each individual"s consumer surplus to describe the overall benefits that buyers received in the market. Represented graphically by the area underneath the demand curve and above the horizontal line of the equilibrium price.
