willingness to pay
The maximum price a consumer is prepared to pay for a good.
individual consumer surplus
The net gain to an individual buyer from the purhcase of a good. It is equal to the difference between the buyer's willingness to pay and the price paid.
total consumer surplus
The sum of the individual consumer surpluses of all the buyers of a good in a market.
consumer surplus
A term often used to refer to both individual and to total consumer surplus.
cost (of potential seller)
The lowest price at which a seller is willing to sell a good.
individual producer surplus
The net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller's cost.
total producer surplus
The sum of the individual producer surpluses of all the sellers of a good in a market.
producer surplus
A term often used to refer both to individual and to total producer surplus.
total producer surplus
The total net gain to consumers and producers from trading in the market. It is the sum of the producer and the consumer surplus.
property rights
The rights of owners of valuable items, whether resources or goods, to dispose of those items as they choose,
economic signal
Any piece of information that helps people make better economic decisions.
inefficient
Describes a market or economy in which there are missed opportunities: some people could be made better off without making other people worse off.
market failure
The situation in which a market fails to be efficient.
price controls
Legal restrictions on how high or low a market price may go.
price ceiling
A maximum price sellers are allowed to charge for a good or service.
price floor
A minimum price buyers are required to pay for a good or service.
deadweight loss
The loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity.
inefficient allocation to consumers
A form of inefficiency in which people who want a good badly and are willign to pay a high price don't get it, and those who care relatively little about the good are are only willing to pay a low price do get it; often a result of a price ceiling.
wasted resources
A form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by price ceilings.
inefficiency low quality
A form of inefficiency in which sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price; often a result of a price ceiling.
black market
A market in which goods or services are bought and sold illegally--either because it is illegal to sell them at all or because the prices charges are legally prohibited by a price ceiling.
minimum wage
A legal floor on the wage rate, which is the market price of labor.
inefficient allocation of sales among sellers
A form of inefficiency in which sellers who would be willing to sell a good at the lowest price are not always those who actually manage to sell it; often the result of a price floor.
inefficiently high quality
A form of inefficiency in which sellers offer high-quality goods at a high price even though buyers would prefer a lower quality at a lower price; often the result of a price floor.
quantity control
An upper limit, set by the government, on the quantity of some good that can be bought or sold; also referred to as a quota.
quota
An upper limit, set by the government, on the quantity of some good that can be bought or sold; also referred to as a quantity control.
quota limit
The total amount of a good under a quota or quantity control that can be legally transacted.
license
The right, conferred by the government, to supply a good.
demand price
The price of a given quantity at which consumers will demand that quantity.
supply price
The price of a given quantity at which producers will supply that quantity.
wedge
The difference between the demand price of the quantity transacted and the supply price of the quantity transacted for a good when the supply of the good is legally restricted. Often created by a quantity control, or quota.
quota rent
The difference between the demand price and the supply price at the quota limit; this difference, the earnings that accrue to the license holder, is equal to the market price of the license when the license is traded.
price elasticity of demand
The ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign).
midpoint method
A technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the average, or midpoint, of the starting and final values.
perfectly inelastic demand
The case in which the quantity demanded does not respond at all to changes in the price; the demand curve is a vertical line.
perfectly elastic demand
The case in which any price increase will cause the quantity demanded to drop to zero; the demand curve is a horizontal line.
elastic demand
When the price elasticity of demand is greater than 1.
inelastic demand
When the price elasticity of demand is less than 1.
unit-elastic demand
The case in which the price elasticity of demand is exactly 1.
total revenue
The total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.
cross-price elasticity of demand
A measure of the effect of the change in the price of one good on the quantity demanded of the other; it is equal to the percent change in the quantity demanded of one good divided by the percent change in the price of another good.
income elasticity of demand
The percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income.
income-elastic demand
When the income elasticity of demand for a good is greater than 1.
income-inelastic demand
When the income elasticity of demand for a good is positive but less than 1.
price elasticity of supply
A measure of the responsiveness of the quantity of a good supplied to the price of that good. It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.
perfectly inelastic supply
The case in which the price elasticity of supply is zero, so that changes in the price of that good have no effect on the quantity supplied; the ______________ curve is a vertical line.
perfectly elastic supply
The case in which even a tiny increase or reduction in the price will lead to very large changes in the quantity supplied, so that the price elasticity of supply is infinite; the ____________ curve is a horizontal line.