25 terms

Micro- Welfare Economics

Chapters 7,8, 9, & 10
STUDY
PLAY
Welfare Economics
The study of how the allocation of resources affects economic well-being
Willingness to pay
The maximum amount that a buyer will pay for a good
Consumer Surplus
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Cost
The Value of everything a seller must give up to produce a good
Producer Surplus
The amount a seller is paid for a good minus the seller's cost of providing it
Efficiency
The property of a resource allocation of maximizing the total surplus received by all members of society
Equality
The property of distributing prosperity uniformly among members of society
Market Failure
The inability of some unregulated markets to allocate resources efficiently
Tax Wedge
The difference between what the buyer pays and the seller receives when a tax is placed in a market
Deadweight loss
The reduction in total surplus that results from a tax
Laffer Curve
A graph showing the relationship between the size of a tax and the tax revenue collected
Externality
The uncompensated impact of one person's actions on the well-being of a bystander
Positive externality
A situation when a person's actions have a beneficial impact on a bystander
Negative Externality
A situation when a person's actions have an adverse impact on a bystander
Social Cost
The sum of private costs and external costs
Internalizing an externality
Altering incentives so that people take into account the external effects of their actions
Corrective Tax
A tax designed to induce private decision makers to take into account the social costs that arise from a negative externality
Coase Theorem
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
Transaction Costs
The Cost that parties incur in the process of agreeing and following though on a bargain
Free Rider
A person who receives the benefit of a good but avoids paying for it
Cost-benefit analysis
A study that compares the costs and benefits to society of providing a public good.
Tragedy of the Commons
A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.
World Price
The Price of a good that prevails in the world market for that good.
Price Takers
Market participants that cannot influence the price so they view the price as given.
Tariff
A tax on goods produced abroad and sold domestically