Demand and Supply: An Equilibrium Analysis

Question	Answer
Excess Supply	the quantity supplied > quantity demanded
Excess Demand	quantity demanded > quantity supplied
Equilibrium Price and Quantity	the price (quantity) such that the quantity supplied equals the quantity demanded
Reservation Price (Buyer)	the highest price a buyer is willing to pay for a given good
Reservation Price (Seller)	the lowest price a seller is willing to accept for a given good
Rationing Rule	buyers who value the good more will be the first to buy it
Consumer Surplus	difference between what a consumer pays and what she was willing to pay
Producer Surplus	difference between the price a seller receives and what he was willing to receive
Total Consumer Surplus	sum of the economic surplus of all consumers
Total Producer Surplus	sum of the economic surplus of all producers
Total Surplus	sum of the total consumer surplus and the total producer surplus
Pareto Efficiency	an outcome situation in which it is impossible to make any individual better off without making at least one other individual worse off
Pareto Improving Transaction	a transaction where all parties involved are better off
The Invisible Hand Principle	individuals’ independent efforts to maximize their gains will generally be beneficial for society and result in the socially optimal allocation of resources.

Resource summary

	Created by Natalia Djohari over 9 years ago