Chapter 5: Market Outcomes and Tax Incidence

Question 1

the branch of economics that studies how the allocation of resources affects economic wellbeing

Answer 1

welfare economics

Question 2

the maximum price a consumer will pay for a good or service, also known as the reservation price

Answer 2

willingness to pay

Question 3

the difference between the willingness to pay for a good or service and the price that is paid to get it

Answer 3

consumer surplus

Question 4

the minimum price a seller will accept to sell a good or service

Answer 4

willingness to sell

Question 5

the difference between the price that the seller receives and and the price at which the seller is willing to sell the good or service

Answer 5

producer surplus

Question 6

also known as social welfare, the sum of the consumer surplus and producer surplus, measures the well-being of all participants in a market, absent any government intervention

Answer 6

total surplus

Question 7

when an allocation of resources maximizes total surplus

Answer 7

efficient outcome

Question 8

refers to the fairness of the distribution of benefits among the members of a society

Answer 8

equity

Question 9

taxes levied on a particular good or service

Answer 9

excise taxes

Question 10

the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on

Answer 10

incidence

Question 11

the decrease in economic activity caused by market distortions

Answer 11

deadweight loss