Chapter 4: Microeconomic foundations of Cost-Benefit Analysis Flashcards
Demand Curve
A demand curve indicates the quantity of a good that a person is willing to purchase at various price
Consumer Surplus
The Consumer Surplus (CS) or the “net benefit” to consumers equals the total benefits minus the spending PX.
The Price elasticity of demand
It is the percentage of change in quantity demanded resulting from a 1 percent increase in price.
True or false? If you know the Elasticity, you can predict the effect of a price increase on consumer surplus without knowing the demand
True
Taxes
Taxation is the main source of financing when the government implements a policy (or a project).
Deadweight loss
The DWL is the part of the preceding consumer surplus that is lost and not offset by any new benefit in the society
Supply Curves
In CBA, we consider the opportunity costs.
The area below the market supply curve represents the total variable cost of producing a given amount of good
Marginal Cost
MC indicates the additional cost to produce each additional unit of good.
The MC curve intersects the average variable cost function (AVC) of the firm exactly at its minimum.
Producer Surplus
The Producer Surplus(PS) equals firms’ revenue minus the total variable cost.
Social Surplus
The surplus of the society is called: social surplus. In absence of impacts on the government, it is the sum of CS and PS. SS= CS+PS
Social Benefit
The social benefits equal total consumers benefits minus total producers costs.
Equilibrium
When marginal benefits = marginal costs
Factor Surplus
Some producer surplus can be created by some particular factors of production.
Government Surplus
Financial inflows from taxes minus governmental expenditures
Leakage
It represents the proportion of government subsidy that is not transferred to consumers and producers.
