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What Is the Total Surplus in a Market, and Why

question 24

Essay

What is the total surplus in a market, and why might it be a good measure of economic wellbeing? Using a demand-supply diagram, show the areas representing total surplus.


Definitions:

After-Tax Discount Rate

The discount rate used in capital budgeting that accounts for the effects of taxes on the net present value of a project or investment.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available for day-to-day operations.

Income Tax Rate

The rate determining the tax payment on the income for individuals and corporations.

Salvage Value

The estimated residual value of an asset after it has reached the end of its useful life.

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