CoreMicroEconomics_CH_4 Flashcards
What are the five requirements for markets to be efficient?
(1) Information must be widely available,
(2) property rights must be protected
(3) private contracts must be enforced,
(4) spillovers should be minimal
(5) competition should prevail
What is consumer surplus?
The difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve
What are property rights?
The clear delineation of ownership of property backed by government enforcement
How are markets rationing devices?
Given our limited resources, each of us must decide which products are most important to us, since we cannot have unlimited quantities. Everyone chooses based on their tastes, preferences, and limited income
How do markets impose discipline on producers and consumers?
Producers would like to charge higher prices and earn greater profits, but their economic survival depends on turning out quality goods at reasonable prices. As consumers, we would all like to engage in frequent extravagant purchases, but given our limited resources, each of us must decide which products are most important to us. As a result, markets are also rationing devices
What is a producer surplus?
The difference between market price and the price at which firms are willing to supply the product. It is equal to the area below market price and above the supply curve
