Chapter 4 Flashcards
1
Q
Willingness to pay
A
- maximum price at which he or she would buy that good
2
Q
individual consumer surplus
A
- the net gain to an individual buyer from the purchase of a good
- equal to the difference between the buyer’s willingness to pay and the price paid
3
Q
total consumer surplus
A
- the sum of the individual consumer surpluses of all the buyers of a good in a market
4
Q
consumer surplus
A
- often used to refer to both individual and to total consumer surplus
5
Q
Consumer surplus on a graph
A
- equal to the area below the demand curve but above that price
6
Q
cost
A
- the lowest price a seller is willing to sell a good
7
Q
individual producer surplus
A
- the net gain to an individual seller from selling a good
- equal to the difference between the price received and the seller’s cost
8
Q
total producer surplus
A
- in a market is the sum of the individual producer surpluses of all the sellers of a good in a market
9
Q
producer surplus
A
- economists use this term to refer both to individual and to total producer surplus
10
Q
total surplus
A
- the total net gain to consumers and producers
- sum of producer and consumer surplus
11
Q
3 ways to increase total surplus
A
- reallocate consumption amoung consumers
- reallocate sales among sellers
- change the quantity traded
12
Q
3 caveats
A
- markets arent fair
- markets sometimes fail
- even what equilibrium maximizes surplus, does not mean it’s the best for every individual
13
Q
efficiency
A
- about how to achieve goals, not what those goals should be
- efficiency does not address the best way to achieve a goal once it has been determined
14
Q
interrelated markets
A
- the economy as a whole is made up of many interrelated markets
15
Q
theoretical result
A
- it is virtually impossible to find an economy in which every market is efficient
