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Consumer Surplus and Willingness to Pay definitions

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Terms in this set (14)

  • Consumer Surplus
    Difference between what buyers are willing to pay and what they actually pay, visualized as area below demand curve and above market price.
  • Willingness to Pay
    Maximum amount a buyer would exchange for a good, often shown as a point on the demand curve.
  • Reservation Price
    Highest price a consumer would accept for a product, marking their entry point into the market.
  • Demand Curve
    Graphical representation of buyers' willingness to pay at various prices, typically downward sloping.
  • Market Price
    Actual price at which goods are exchanged, determining the level of consumer surplus.
  • Marginal Benefit
    Additional satisfaction or value gained from consuming one more unit, reflected by the demand curve.
  • Marginal Cost
    Cost associated with consuming or producing one extra unit, relevant for comparing with marginal benefit.
  • Economic Welfare
    Measure of overall benefit to society from market transactions, often linked to consumer surplus.
  • Total Consumer Surplus
    Sum of all individual surpluses in a market, represented by the area under the demand curve and above market price.
  • Original Consumer Surplus
    Surplus enjoyed by buyers at the initial market price before any price change.
  • Additional Consumer Surplus
    Extra surplus gained by existing buyers when the market price decreases.
  • New Consumer Surplus
    Surplus acquired by new buyers entering the market after a price drop.
  • Triangle Formula
    Mathematical method for calculating consumer surplus as area: one-half base times height.
  • Quantity Demanded
    Number of units buyers are willing to purchase at a specific price, shown on the demand curve.