ECON 20 Lecture Notes - Lecture 6: Budget Constraint, Economic Surplus, Deadweight Loss

• School: Irvine Valley College
• Department: Economics
• Course: ECON 20
• Professor: mcneil

Document Summary

Consumer surplus: the difference between the maximum amount a person is willing to pay for a good and its current market price. Example: you want to buy hamburgers up to , but the hamburgers at the store are , so you have consumer surplus. Other way to think of consumer surplus = area between the demand cure and the price for given quantity. Producer surplus: the difference between the current market price and the full cost of production for the firm related to profit but not exactly the same. If something costs . 5 to produce, then if you sell it, you want to sell it for more than . 5. Supply curve tells us the min price that firms want to receive. Other way to think of producer surplus, are between price and supply curve for given quantity. Competitive markets maximize the sum of producer and consumer surplus.