Question

What term would an economist use to describe what happens when a shopper gets a “good deal” on a product?

Short answer

In conclusion, the term economists use to describe a "good deal" for a shopper is "consumer surplus." It is the difference between the price a consumer is willing to pay and the actual price paid for a product, reflecting the additional satisfaction a consumer gains from purchasing the product at a lower price.

Step-by-step solution

Definition: Consumer Surplus

Consumer surplus is the term economists use to describe the difference between the highest price a consumer is willing to pay for a good or service and the actual price paid. It represents the benefit or satisfaction a consumer receives when they purchase a product at a lower price than what they were prepared to pay. Simply put, it's the "good deal" a shopper gets when buying a product.

Example of Consumer Surplus

Let's consider a simple example: A shopper is willing to pay \(20 for a T-shirt, but they find it on sale for \)15. In this case, the consumer surplus is \(5 because the shopper paid \)5 less than what they were willing to pay. This $5 represents the extra satisfaction or benefit the shopper has gained from purchasing the T-shirt at a lower price. In conclusion, the term economists use to describe a "good deal" for a shopper is "consumer surplus." It is the difference between the price a consumer is willing to pay and the actual price paid for a product, reflecting the additional satisfaction a consumer gains from purchasing the product at a lower price.

Key concepts

Economics and Consumer Surplus

Economics is the social science that studies the production, distribution, and consumption of goods and services. Within this broad field, the concept of consumer surplus plays a pivotal role in understanding consumer behavior and market dynamics. Consumer surplus is a measure of economic welfare that represents the difference between the maximum price a consumer is willing to pay for a particular good or service and the market price they actually pay.

For consumers, this surplus translates into real monetary savings and increased satisfaction from their purchases. For example, when a buyer values a pair of headphones at \(100 but acquires it for \)70, they gain a consumer surplus of $30. This excess is essentially the value of the 'good deal' the buyer experiences. From an economic standpoint, consumer surplus is crucial for assessing the benefits of trade, market efficiency, and the impacts of policy decisions such as taxation or subsidies on welfare.

Price Elasticity of Demand

The price elasticity of demand is a key concept in economics that quantifies how much the quantity demanded of a good or service is affected by a change in its price. In mathematical terms, it is the percentage change in quantity demanded divided by the percentage change in price. A high elasticity means that consumers are highly responsive to price changes, while a low elasticity indicates that demand is relatively insensitive to price.

Understanding elasticity helps predict consumer surplus under differing market conditions. If the demand for a product is highly elastic, a small decrease in price can lead to a large increase in consumer surplus, because it dramatically increases the quantity sold. Conversely, if demand is inelastic, consumers benefit less from price decreases since their purchasing behavior remains largely unchanged. Thus, price elasticity not only influences consumers' sensitivity to price but also impacts their potential to earn economic benefits in terms of consumer surplus.

Market Equilibrium

Market equilibrium occurs when the quantity of a good or service demanded by consumers equals the quantity supplied by producers at a certain price level. It is where the supply and demand curves intersect, and there is no excess supply or demand. At this point, the market is considered to be ‘clearing’ effectively, meaning that the allocative resources are optimized and there is no consumer or producer surplus.

However, market equilibrium is an ideal state, and real-world markets often fluctuate around this point of balance. When market prices are lower than the equilibrium price, consumer surplus is maximized because consumers are paying less for their goods and services than what they would be willing to pay in an equilibrium state. This surplus is a benefit to consumers but could indicate an inefficiency in the market that prevents suppliers from capitalizing on potential profits. Thus, understanding market equilibrium is vital for grasining how prices, consumer surplus, and overall market efficiency are interrelated.