ch 4 Flashcards
willingness to pay?
this is the max price that someone will buy the good for
individual consumer surplus?
net gain to a individual butyer from the purchase of the good
what happens to the quantity demanded as price goes down
the quantity demanded will go up since they are inversely related
total consumer surplus
the sum ( total amount) of a individual buyers of a good
how to calculate the consumer surplus
same as a triangle half of the base times height
what would happen to the consumer surplus when prices fall
when prices fall the surplus is increased because of new costumers of are persuaded by the new price and also from a gain to the original people who would’ve bought at the original price
what happens to consumer surplus when the price goes up
the consumer surplus goes down since they are inversely related
what is the lowest price a seller will be willing to sell a good for in most cases (potential sellers cost)
they will sell at the cost of production or beak even do not think about losses that’s too advanced
Individual producer surplus
net gain to the seller when selling a good
how to find the individual producer surplus
difference between the market price and the price firms are willing to supply the good (cost of production)
what is the total producer surplus
the sum of all individual producer surplus
increase in producer surplus 2 causes
gains from people who supply the good at a higher price and the gains from those who supply the good at original or lower price
total surplus?
total net gain from consumers and producers from trading in the market
total surplus calculation
ts=cs+ps
what does reallocating consumption cause
a consumer surplus
what does re allocating sales cause
a producer surplus
what does changing quantity cause
lowers the total surplus
why are markets usually efficient
they allocate consumption to potential buyers who value it the most / willing to pay more for it. they allocate sales to sellers who have the lowest cost. all transactions are beneficial for all parties. no mutually beneficial transactions every potential buyer who doesn’t make a purchase values the good less than the seller who doesn’t make the sale
equity definition
being fair
efficiency vs equity
equity is only looking out for fairness ensuring that all parties are treated the same or have the same outcome while efficiency is more selfish becoming more efficient causes you to directly hurt the competition
why do markets work so well
2 reasons property rights once you buy some thing you own it and economic signals mostly price signals which show that at a certain price people are willing to buy something these signals allow for producers and consumers to make decisions
what are property rights
rights to valuable items and to do what they want with them protects incentive to trade and promotes innovation do not think of this only as patents but more importantly like how once consumers buy a good that good is theirs any changes in price or value or condition or anything to that good is there’s eg some one buys land they can build what ever they want as long as it follows regulations or someone buys a stock and the price goes up there entitled to the gain from that purchase
what are economic signals
piece of information that helps people make better economic decisions prices are the most important signal since it shows shortage and excess, if the price is going up for consumers that could mean there is a shortage and for producers that could be a sign to produce more etc
are markets always efficient
no some times they fail
what is happening when a market is inefficient
there might be equity in the market but there are also missed opportunities
what causes market failure
inefficient markets
