BackEconomic Surplus and Efficiency definitions
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1/15BackSkip to main contentBackEconomic Surplus
Sum of gains to buyers and sellers, representing total net benefit from market transactions at a given price and quantity. Consumer Surplus
Area between the demand curve and market price, showing extra value buyers receive over what they pay. Producer Surplus
Area between market price and supply curve, reflecting extra earnings sellers receive above their minimum acceptable price. Market Equilibrium
Point where supply and demand intersect, ensuring no unexploited gains from trade and maximum total surplus. Deadweight Loss
Lost potential surplus from trades that do not occur due to market inefficiency, often visualized as the 'bowtie' area. Shortage
Situation where quantity demanded exceeds quantity supplied, typically resulting from prices set below equilibrium. Surplus
Condition where quantity supplied exceeds quantity demanded, usually caused by prices above equilibrium. Allocative Efficiency
State where resources are distributed to match consumer preferences, achieved when the right amount of goods is produced. Productive Efficiency
Condition where goods are produced at the lowest possible cost, driven by competition among suppliers. Marginal Benefit
Additional value a consumer places on one more unit of a good, represented by the demand curve. Marginal Cost
Extra cost to producers for making one more unit, depicted by the supply curve. Market Failure
Breakdown in market efficiency, often due to regulations, externalities, monopoly power, or high transaction costs. Externality
Unintended cost or benefit affecting those not directly involved in a market transaction, such as pollution. Monopoly
Market structure with a single seller, allowing control over price and often leading to inefficiency. Transaction Costs
Expenses incurred in making an exchange, which can prevent beneficial trades if excessively high.
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