Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Question 1

price ceiling

Answer 1

a legally determined maximum price that sellers may charge

Question 2

price floor

Answer 2

a legally determined minimum price that sellers may receive

Question 3

consumer surplus

Answer 3

the difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays

Question 4

marginal benefit

Answer 4

the additional benefit to a consumer from consuming one more unit of a good or service

Question 5

marginal cost

Answer 5

the additional cost to a firm of producing one more unit of a good or service

Question 6

producer surplus

Answer 6

the difference between the lowest price a firm would be willing to accept for a god or service and the price it actually receives

Question 7

economics surplus

Answer 7

the sum of consumer surplus and producer surplus

Question 8

deadweight loss

Answer 8

the reduction in economic surplus resulting from a market not being in competitive equilibrium

Question 9

economic efficiency

Answer 9

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Question 10

black market

Answer 10

a market in which buying and selling take place at prices that violate government price regulations

Question 11

tax incidence

Answer 11

the actual division of the burden of a tax between buyers and sellers in a market