Chapter 7 Terms Flashcards
Consumer surplus
Economic surplus you get from buying something; consumer surplus = marginal benefit - price
Deadweight loss
How far economic surplus falls below the efficient outcome; deadweight loss = economic surplus at efficient quantity - actual economic surplus
Distributional consequences
Who gets what
Economic efficiency
An outcome is more economically efficient if it yields more economic surplus
Economic surplus
Total benefits minus total costs flowing from a decision. It measures how much a decision has improved your well-being
Efficient allocation
Allocating goods to create the largest economic surplus, which requires that each good goes to the person who’ll get the highest marginal benefit from it
Efficient outcome
Efficient outcome yields the largest possible economic surplus
Efficient production
Producing a given quantity of output at the lowest possible cost, which requires producing each good at the lowest marginal cost
Efficient quantity
The quantity that produces the largest possible economic surplus
Equity
An outcome that yields greater equity if it results in fairer distribution of economic benefits
Government failure
When government policies lead to worse outcomes
Market failure
When the forces of supply and demand lead to an inefficient outcome
Normative analysis
Prescribed what should happen which involves value judgments
Positive analysis
Describes what is happening, explaining why, or predicting what will happen
Producer surplus
Economic surplus you get from selling something; producer surplus = price - marginal cost
