Chapter 7: Market Efficiency and Failure Flashcards
Positive Analysis
what is actuallty happening in the market by describing and predicting
Normative Analysis
what should be happening in the market by using personal values and judgement
Consumer Surplus
a buyer’s gain from buying something, calculated by marginal benefit - price. use the rational rule for buyers to maximize surplus
Producer Surplus
a seller’s gain from selling something, calculated by price - marginal cost. use the rational rule for sellers to maximize surplus
Voluntary Exchange
buyers and sellers who trade money for goods, usually a win win but not a guaranteed equal gains. calculated by marginal benefit - marginal cost
Market Efficiency
who makes what, who gets what, and for how much? efficient production means producing at the lowest cost possible, efficient allocation means distributing goods to create the larges economic surplus.
Economic Efficiency
yields the most surplus, which measures the size of the whole pie, but not necessarily each slice’s size
Market Failure
inefficient outcome is sourced from 5 factors; market power, externalities, informational problems, irrationality, and governmental regulations
Deadweight Loss
how far below the surplus sits from the most efficient outcome (where marginal benefit and cost curves cross), calculated by the EFFICIENT economic surplus - ACTUAL economic surplus.
