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CH7 MicroEconomics Consumers, Producers, and the Efficiency Of Markets
Terms in this set (11)
the study of how the allocation of resources affects economic well-being.
Willingness To Pay
The Max amount that a buyer will pay for a good
The amount a buyer is willing pay for a good minus the amount the buyer actually pays for it.
the value of everything a seller must give up to produce a good.
The amount a seller is paid for a good minus the seller's cost of providing it.
The proper of resource allocation of maximizing the total surplus received by all members of society.
The property of distributing economic prosperity uniformly among the members of society.
Explain how buyer's willingness to pay, consumer surplus, and the demand curve are related.
Consumer surplus equals buyers' willingness to pay for a good minus the amount they actually pay, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price.
Explain how sellers' costs, producer surplus, and the supply curve are related
Producer surplus equals the amount sellers receive for their goods minus their costs of production, and it measures the benefit sellers get from participating in a market. Producer surplus can be computed by finding the area below the price and above the supply curve.
What is efficiency? It is the only goal of economic policymakers?
An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient. Policymakers are often concerned with the efficiency, as well as the equality, of economic outcomes.
Name two types of market failure. Explain why each may cause market outcomes to be inefficient.
If markets do not allocate resources efficiently in the presence of market failures much as market power or externalities.
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