Ch. 7: Perfect Competition and the Invisible Hand

Question 1

Reservation value

Answer 1

The price at which a person is indifferent between making the trade and not doing so.

Question 2

Social surplus

Answer 2

= consumer surplus + producer surplus

Question 3

Pareto efficient

Answer 3

An outcome is Pareto efficient if no individual can be made better off without making someone else worse off.

Question 4

Price control

Answer 4

A government restriction on the price a firm can charge for a good or service

Question 5

Deadweight loss

Answer 5

The decrease in social surplus that results from a market distortion

Question 6

Gross domestic product

Answer 6

The market value of final goods and services produced in a country in a given period of time.

Question 7

Coordination problem

Answer 7

When the interests of economic agents coincide, a coordination problem of bringing the agents together to trade arises.

Question 8

Incentive problem

Answer 8

When the optimizing actions of two economic agents are not aligned, these agents face an incentive problem.

Question 9

Equity

Answer 9

Is concerned with how the pie is allocated to the various economic agents

Question 10

Double oral auction

Answer 10

Both bids and asks are orally stated

Question 11

Bilateral negotiations

Answer 11

A single buyer and a single seller confront each other with bids and asks—rather than yelling out the offers to the group.