pcecon.com Class Notes

The Gains to Buyers From Trade
The basis of demand is marginal utility,
the demand curve can be used to measure how much more valuable the good is to buyers than the price they are paying to get it. This “extra” utility that consumers get in addition to the amount they are paying is called CONSUMER SURPLUS.

The Gains to Sellers From Trade
The basis of supply is marginal cost,
the supply curve can be used to measure how much more sellers get paid for selling a good than it costs them to sell it. This “extra” payment that sellers get, over the cost of selling, is called PRODUCER SURPLUS.

Top Ten Totally Like, um, Nice Things About Equilibrium

10. At equilibrium, the gains from trade are maximized (if you count the consumer surplus and the producer surplus together)

9. At equilibrium, every unit of the good that someone values (in terms of marginal utility) more than the marginal opportunity cost gets produced.

8. At equilibrium, no unit of the good gets produced if it costs more to produce (in terms of opportunity cost) than it is valued (in terms of marginal utility).

7. At equilibrium, the quantity demanded of a good equals the quantity supplied.

6. At equilibrium, there is neither a surplus of the good, nor a shortage of the good.

5. At equilibrium, the marginal utility of buyers is just about equal to the marginal cost of sellers.

4. At equilibrium, there's a big, pretty blue dot.

3. When you say "equilibrium," some people think you invented a new word for "equality," "liberty," and "freedom."

2. It's fat free, sugar free, and does not promote tooth decay.

1. Equilibrium never complains when you misspell its name, unlike certain economics professors.

Copyright 2006 by Ray Bromley. For economics information, and other information about Ray Bromley, visit www.raybromley.com. Permission to copy for educational use is granted, provided this notice is retained. All other rights reserved.
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