Glossary
Consumer Surplus
The monetary benefit consumers receive when they are able to purchase a good or service for a price less than the maximum they would be willing to pay.
Example:
If you were willing to pay 30, your consumer surplus is $20.
Deadweight Loss
A loss of economic efficiency that occurs when the equilibrium quantity of a good or service is not achieved, often due to market distortions like taxes or quotas.
Example:
When a city imposes a rent control ceiling below the market rate, it can create a deadweight loss by reducing the number of available apartments and preventing mutually beneficial transactions.
Equilibrium Price (P_E)
The price at which the quantity demanded equals the quantity supplied in a market, representing a stable market condition.
Example:
Before any trade restrictions, the equilibrium price for a smartphone might be $500, where the number of phones consumers want to buy matches what producers are willing to sell.
Equilibrium Quantity (Q_E)
The quantity of a good bought and sold at the equilibrium price, where supply and demand intersect.
Example:
At the equilibrium quantity of 1 million units, the market for a new video game is perfectly balanced, with no surplus or shortage.
International Trade
The exchange of goods and services between different countries, allowing nations to specialize and access a wider variety of products.
Example:
When the U.S. imports coffee beans from Brazil, it's engaging in international trade, benefiting both Brazilian farmers and American coffee drinkers.
Producer Surplus
The monetary benefit producers receive when they sell a good or service for a price higher than the minimum they would be willing to accept.
Example:
A farmer willing to sell a bushel of corn for 6 earns a producer surplus of $2.
Public Policy
Laws and regulations enacted by governments to manage economic activity and achieve specific societal goals.
Example:
A government's decision to offer tax breaks for electric vehicle purchases is a public policy aimed at promoting environmental sustainability.
Quota
A quantitative limit on the amount of a specific good that can be imported into a country during a given period.
Example:
If a country sets a quota of 10,000 imported cars per year, no more than that number can enter, potentially driving up prices for consumers.
Tariff
A tax imposed by a government on imported goods or services, increasing their price in the domestic market.
Example:
A 25% tariff on imported steel makes foreign steel more expensive, encouraging domestic steel production but raising costs for industries that use steel.
Tariff Revenue
The income collected by the government from imposing tariffs on imported goods.
Example:
When a country imports 1 million cars with a 1 billion in tariff revenue.
World Price (P_W)
The prevailing price of a good or service in the international market, determined by global supply and demand.
Example:
If the world price of oil drops significantly, countries that import oil will see lower fuel costs, while oil-exporting nations will experience reduced revenue.