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Macroeconomics Ch.4

Terms in this set (22)

Surplus
Something that remains above what is used or needed
Idea of surplus
The benefit that people derive from engaging in market transactions
Consumer surplus
The difference between the highest price a consumer is willing to pay for a good or service and the actual price the customer receives
Producer surplus
The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.
Marginal benefit
The additional benefit to a consumer from consuming one or more unit of a good & service
Low price/ high price
Consumer benefit/ few consumer benefits
Consumer surplus (where is it located)
The areas below the demand curve, above price
What is the lowest price a firm would accept for a good or service
The marginal cost of producing that good or service.
Marginal cost
The additional cost to a firm of producing one or more unit of good or service.
Consumer surplus (measures)
The net benefit to consumers participating in the market rather than the total benefit
Consumer surplus (equal)
To the total benefit received by the consumers minus the total amount they must pay to buy the good and service
Producer surplus (measures)
The net benefit received by producers from participating in a market
Producer surplus (equal)
To the total amount of firms receive from consumers minus the cost of producing a good or service
A market is efficient when (2)
1) if all trades takes place where Marginal benefit exceeds marginal cost and no other trades take place
2) if it maximizes the sum of consumer and producers surplus (economic surplus)
Economic efficiency
A market outcome in which the MB to consumers of the last unit produced is equal to it's marginal cost of production & in which the sum of consumer & producer surplus is at a maximum
Demand curve
Describes the marginal benefit
Supply curve
Describes the marginal cost of each additional cup of tea
Deadweight loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium (inefficiency in a market)
Price ceiling
A legally determined maximum price that sellers can change
Price floor
A legally determined minimum price that sellers may receive
Ceiling & floor
Not at equilibrium/ government affects the market
Ceilings & floors in the USA
Minimum wage
Rent control
Agricultural price control
THIS SET IS OFTEN IN FOLDERS WITH...