Chapter 7 micro


Terms in this set (...)

Pareto efficiency
A condition in which no change is possible that will make some members of society better off without making some other members of society worse off
- whenever the market is out of equilibrium it is possible to construct exchanges that will help some without harming others
markets are efficient when
buyers and sellers are well informed
markets are perfectly competitive
supply measures
when the pie is larger
everyone gets a bigger slice
instead of introducing price controls, you can
increase incomes for people
subsidies are like price ceilings in that they
reduce total economic surplus
deadweight loss
the total loss of producer and consumer surplus from underproduction or overproduction
Why does deadweight loss occur?
the tax reduces economic surplus because it distorts the equality between marginal benefit and marginal cost
the smaller the elasticity (the more inelastic) of demand, the _____ the deadweight loss from a tax
(the more vertical looking it is)
the smaller the elasticity of supply (the more inelastic and vertical it looks) the _____ the deadweight loss from a tax