Chapter 7- Consumers, Producers, & the Efficiency of Markets Flashcards

1
Q

Welfare Economics

A

the study of how the allocation of resources affects economic well-being

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2
Q

Willingness to Pay

A

the maximum amount that a buyer will pay for a good

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3
Q

Consumer Surplus

A

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
-profit/gain

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4
Q

Marginal Buyer

A

the buyer who would leave the market first if the price were any higher

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5
Q

For all demand curves…

Consumer surplus

A

the area below the demand curve and above the price measures the consumer surplus in the market

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6
Q

Increase in consumer surplus is composed of two parts

A

1) Buyers who were already buying Q1 of the good at the higher P1 are better off because they now pay less
2) New buyers enter the market because they are willing to buy the good at the lower price

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7
Q

Cost

A

the value of everything a seller must give up to produce a good

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8
Q

Producer Surplus

A

the amount a seller is paid for a good minus the seller’s cost of providing it

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9
Q

This applies to all supply curves:

Producer surplus

A

the area below the price and above the supply curve measures the producer surplus in a market

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10
Q

Total Surplus

A

Value to buyers - Cost to sellers

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11
Q

Efficiency

A

the property of a resource allocation of maximizing the total surplus received by all members of society

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12
Q

Equality

A

the property of distributing economic prosperity uniformly among the members of society

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13
Q

Total Surplus on a graph

A

the total area between the supply and demand curves up to the point of equilibrium represents the total surplus in the market

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14
Q

Advocated by economists as the best way to organize economic acvitivty

A

Free Markets

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