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Chapter 4 Economic Efficiency, Government Price Setting, and Taxes

Terms in this set (14)

Price Ceiling
A legally determined maximum price that sellers may charge
Price floor
A legally determined minimum price that sellers may receive.
Consumer surplus
The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.
Measures the dollar benefit consumers receive from buying goods or services in a particular market/the net benefit to consumers from participating in the market. It is equal to the total benefit consumers receive minus the total amount they must pay to buy the good or service.
Demand curves show the willingness of consumers to purchase a product at different prices.
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.
Measures the dollar benefit firms receive from selling goods and services
It measures the net benefit received by producers from participating in the market.
It is equal to the total amount firms receive form consumers minus the cost of producing the good or service.
Economic surplus
The sum of consumer and producer surplus in a market.
Is at a maximum when the market is in equilibrium.
It is the best measure we have of the benefit to society frm the production of a particular good or service.
Marginal beneift
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal cost
The additional cost to a firm of producing one more unit of a good or service.
Firms will only supply an additional unit of a product if they receive a price equal to the additional cost of producing that unit.
Increasing it is the key reason that supply curves are upward sloping.
Deadweight loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium.
Economic efficiencty
A market outcome in which the marginal benefit to consumer of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
The marginal benefit form the last unit sold should equal the marginal cost of production
Equilibrium in a competitive market
Results in the greatest amount of economic surplus, or total net benefit to society, form the production of a good or service.
Black Market
A market in which which buying and selling take place at prices that violate government price regulations.
When governments try to control prices by setting price ceilings or price floors, buyers and sellers often find a way around the controls.
Excess burden of the tax
The deadweight loss from a tax
Public finance
Analyzing taxes
Tax incidence
The actual division of the burden of a tax between buyers and sellers in a market.
THIS SET IS OFTEN IN FOLDERS WITH...