Chapter 7(consumers,producers,efficiency of markets) Flashcards
welfare economics
the study of how the allocation of resources affects economic well-being
willingness to pay
the maximum amount that a buyer is willing to pay
consumer surplus
the difference between what a buyer is willing to pay and what they actually pay
cost
what producers have to give up in order to make something(benefit in eyes of buyer)
producer surplus
the difference between what it costs a seller and the price they receive(benefit in eyes of seller)
where is consumer surplus located on a supply curve
bellow the demand curve and above the price
where is producer surplus located on a supply cirve
above the supply curve and below the price
total surplus
consumer surplus + producer surplus
efficiency
the property of a resource allocation of maximizing the total surplus received by all members of society (if allocation of resources maximized total surplus, the allocation exhibits efficiency)
equality
the property of distributing economic prosperity uniformly among the members of society
consumer surplus increases as price___
decreases
producer surplus increases as price___
increases
free market allocate the supply of goods to buyers with___
the highest willingness to pay
free markets allocate the demand for goods to the sellers who____
produce them at the lowest cost
