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LINE ITEM VETO: A policy intended to address the efficiency caused by legislative logrolling by giving executive officers who have veto authority over legislation (Presidents, Governors, Mayors), the ability to veto specific sections of a legislative act rather than the entire act. With a standard veto, the executive vetoes the entire piece of legislation. With line item veto, the executive can veto only parts of the legislation while signing the rest of it into law. While a line item veto is likely to reduce logrolling, it effectively gives the executive officer more power and authority.
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CONSUMER SURPLUS: The satisfaction that consumers obtain from a good over and above the price paid. This is the difference between the maximum demand price that buyers are willing to pay and the price that they actually pay. A related notion from the supply side of the market is producer surplus. Consumers' surplus is the extra satisfaction received when purchasing a good. The demand price is generally greater than the price actually paid. Most consumers under most circumstances receive some surplus of satisfaction. Even competitive markets overflowing with efficiency generate an ample amount of consumer surplus.Suppose, for example, that Duncan Thurly is willing and able to pay $3 for a Hot Momma Fudge Bananarama Ice Cream Sundae. This is his demand price. However, the going market price, the actual price that everyone pays for a Hot Momma Fudge Bananarama Ice Cream Sundae at the Hot Momma Fudge Bananarama Ice Cream Shoppe is $2. While Duncan is willing and able to pay $3, he pays only $2. He receives a $1 consumer surplus on this purchase. A Visual RepresentationThe demand curve for Yellow Tarantulas, a cute and cuddly creature from the Wacky Willy Stuffed Amigos line of collectibles, presented in this exhibit can be used to illustrate consumer surplus.The demand price of Yellow Tarantulas is measured on the vertical axis and the quantity demanded is measured on the horizontal axis. The negatively-sloped demand curve captures the law of demand relation between these two variables. Key to this discussion, the demand price represents the maximum price that buyers are willing and able to pay. However, they often end up paying less.For example, if the quantity demanded is 20 Yellow Tarantulas, then the demand price is $40. However, if the quantity demanded is 80 Yellow Tarantulas, then the demand price is $10. Now suppose that the going market price of Yellow Tarantulas is $30. If so, buyers are willing and able to purchase 40 Yellow Tarantulas. Click the [Going Price] button to highlight this situation. However, while the demand price for the 40th Yellow Tarantula is $30, the demand prices for the other 30 Yellow Tarantulas are greater than $30. For example, the buyer who purchased the 20th Yellow Tarantula is willing and able to pay $40. Yet, because the market price is only $30, the 20th Yellow Tarantula is purchased for $10 less than the maximum demand price. The difference between the demand price and the price paid is consumer surplus. This particular buyer gains $10 worth of consumer surplus. In fact, every Yellow Tarantula sold up to the 40th generates consumer surplus for the buyer. The 40th Yellow Tarantula is the only one with a match between demand price and price paid and no consumer surplus. The total consumer surplus associated with a $30 price can be revealed by clicking the [Consumers' Surplus] button in the exhibit. The yellow triangle beneath the demand curve, but above the $30 price, is the consumer surplus. The size of this consumer surplus triangle--while probably evident, but worth stating and demonstrating explicitly--depends on the price of the good. A higher price results in a smaller consumers's surplus and a lower price generates a larger consumer surplus. A click of the [Higher] and [Lower] buttons will reveal these alternatives. Producers' SurplusA comparable surplus from the supply side of the market is producer surplus. It too exists in efficient, competitive markets. As a matter of fact, an efficient market is one that generates the maximum total amount of consumers' and producer surpluses. A market that falls short of the maximum is NOT efficient.
Recommended Citation:CONSUMER SURPLUS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 19, 2024]. Check Out These Related Terms... | | | | | | | | | | | Or For A Little Background... | | | | | | | | | | | | | | | And For Further Study... | | | | | | | | |
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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"Look at the abundance all around you as you go about your daily business. You have as much right to this abundance as any other living creature. It's yours for the asking." -- Earl Nightingale
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AVT Ad Valorem Taxes
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