The economic gain of the buyers of a product, as measured by the cumulative difference between their respective reservation prices and the price they actually paid.
Deadweight Loss
Reduction in economic surplus that results from adoption of policy.
demander’s (or buyer’s) reservation price
The highest price a demander will offer in order to obtain a good or service
invisible hand theory
A theory stating that under carefully specified circumstances, the actions of independent, self-interested buyers and sellers will result in the most efficient allocation of resources.
Perfectly Competitive Market
a market in which no individual supplier has significant influence on the market price of the product
price ceiling
A maximum allowable price, specified by law.
price floor
A minimum allowable price, specified by law.
price taker (perfectly competitive firm)
A firm that has no influence over the price of the product it sells.
producer surplus
The economic gain of the sellers of a product, as measured by the cumulative difference between the price received and their respective reservation prices.
supplier’s (or seller’s) reservation price
The lowest price a supplier will accept in return for providing a good or service.
total economic surplus
The total economic surplus in a market is the sum of all the individual economic surpluses gained by buyers and sellers who participate in the market..