3.5 Demand, Supply, and Efficiency

Question 1

_______ is a situation in which nothing can be improved without something else being hurt.

Answer 1

efficiency

Question 2

a _____ is when a consumer is willing to pay more for a given product than the current market price.

Answer 2

consumer surplus

Question 3

What is the relationship between total surplus and economic efficiency?

Answer 3

An economy experiences economic efficiency when total surplus gets MAXIMIZED. Total surplus is the aggregate of producer and consumer surplus. Total surplus gets MAXIMIZED when both consumer and producer surplus is maximum.

Question 4

Consumer Surplus + Producer Surplus = ________

Answer 4

Social Surplus

Question 5

How does inefficiency affect Price Floors and Price Ceilings?

Answer 5

When the imposition of price floors and price ceilings prevent a market from adjusting to its equilibrium price and quantity, producing an inefficient outcome.

Question 6

_______ occurs when the economy produces at an inefficient quantity;
a.k.a. a loss in social surplus

Answer 6

Deadweight loss

Question 7

What is the affect of deadweight loss on consumers and producers?

Answer 7

By blocking transactions that buyers and sellers would have been willing to make creating deadweight loss.

Question 8

How can the economy increase its social surplus?

Answer 8

By removing transaction barriers so prices and quantities can adjust to their equilibrium level.