Chapter 5 - Economic Efficiency

Question 1

Price Ceiling

Answer 1

A legally determined maximum price that sellers may charge. Eg. rent

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 and the price the consumer actually pays. E.g. would pay $3.00 for cup of coffee, but price is $2.5, consumer surplus of 50c

Question 4

Marginal benefit

Answer 4

The additional benefit to a consumer from consuming one more unit of a good or service. Eg Chai tea $ = 4 cups per week. $2.00 = 5 cups a week. It is the price of the last cup.

Question 5

The total amount of consumer surplus in a market is equal to the area below the demand curve and above the market price

Answer 5

diagram

Question 6

Marginal cost

Answer 6

The additional cost to a firm of producing one more unit of a good or service. The supply curve is also a marginal cost curve.

Question 7

Producer surplus

Answer 7

The difference between the lowest price a firm would have been willing to accept and the price it actually receives.

Question 8

The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price.

Answer 8

diagram

Question 9

Consumer surplus in a market is equal to the total benefit received by consumers minus the total amount they must pay to buy a good or service

Answer 9

Equilibrium in a competitive market results in the economically efficient level of output, where marginal benefit equals marginal cost.

Question 10

Economic surplus

Answer 10

The sum of consumer surplus and producer surplus. Diagram

Question 11

Deadweight loss

Answer 11

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

Question 12

Equilibrium in a competitive market results in the greatest amount of economic surplus, or total net benefit to society, from the production of a good or service.

Answer 12

.

Question 13

Economic efficiency

Answer 13

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 the consumer surplus and producer surplus is at its maximum

Question 14

Tax incidence

Answer 14

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