Chapter 5 Flashcards
the branch of microeconomics that seeks to estimate the social welfare of different scenarios in order to determine how to increase net social benefits
welfare economics
total benefits to society minus total costs, or total net benefits
social welfare
impacts of an economic transaction on those not involved in the transaction, such as the health effects of pollution
third-party effects
the maximum amount that a rational consumer will pay for a particular product. In welfare economics, consumers’ maximum WTP represents the total benefits that they expect to obtain from a product, expressed in monetary terms
maximum willingness to pay (WTP)
the net benefits obtained from a purchase, equal to the difference between a consumer’s maximum willingness to pay and the price
consumer surplus
a change of one unit (either an increase or a decrease)
marginal change
the benefit of consuming one additional unit of something
marginal benefit (for consumers)
a curve showing the additional benefit from each unit consumed. Another name for a demand curve, as applied to welfare economics
marginal benefits curve
benefits minus any costs. Consumer surplus is a measure of ________ _________ because it is equal to the difference between the maximum willingness to pay and price
net benefits
the benefits to all consumers in a market
aggregate (of market) benefits
the difference between aggregate costs and aggregate benefits, or net benefits obtained by all consumers in a market. On a supply-and-demand graph, it is equal to the area under a demand curve but above the price
aggregate (or market) consumer surplus
the net benefits that producers receive from selling products, equal to the difference between the selling price and the marginal costs
producer surplus
the cost of producing one additional unit of something
marginal cost
the net benefit (profits) obtained by all producers in a market. On a supply-and-demand graph, it is the area below price but above the supply curve
aggregate (or market) producer surplus
an allocation of resources that maximizes the net benefits to society
social efficiency (in welfare economics)
