Chpt 4: Market Efficiency and Market Failure Flashcards
Price Ceiling
A legally determined maximum price that sellers mat charge.
Price Floor
A legally determined minimum that sellers may receive.
Consumer Surplus
The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.
Marginal Benefit
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal Cost
The Change in a firm’s cost from producing one more unit of a good or service.
Producer Surplus*
The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.
Economic Surplus
The sum of consumer surplus and producer surplus
Deadweight Loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium
Economic Efficiency
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
Illegal Market
A market in which buying and selling take place at prices that violate government price regulations
Externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
Private Cost
The cost borne by the producer of a good or service
Social Cost
The total cost of producing a good or service, including both the private cost and any external cost
Private Benefit
The benefit received by the consumer of a good or service
Social Benefit
A total benefit from consuming a good or service, including both the private benefit and any external benefit
