Chapters 5 & 6 Flashcards
Welfare economics
the branch of economics that study how the allocation of resources affects economic well-being
willingness to pay
maximum price a consumer will pay for a good or service
aka: reservation price
consumer surplus
difference between the willingness to pay for a good (or service) and the price that is paid to get it
willingness to sell
minimum price a seller will accept to sell a good or service
producer surplus
difference between the price that the seller receives and the price at which the seller is willing to sell the good or service
total surplus
social welfare
sum of consumer surplus and producer surplus
-measures the well-being of all participants in a market, absent any government intervention
efficient
the allocation of resources maximizes total surplus
equity
refers to fairness of the distribution of benefits among the members of society
excise taxes
are taxes levied on a particular good or service
incidence
refers to the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on
deadweight loss
decrease in economic activity caused by market distortions
price controls
attempt to set prices through government involvement in the market
price ceiling
legally established maximum price for a good or service
black markets
illegal markets that arise when price controls are in place
rent control
price ceiling that applies to the market for apartment rentals
