Econ Chapter 6 Flashcards
Tax Incidence
Analysis of the effect of a particular tax on the distribution of economic welfare / the ultimate burden of a tax
How Does Relative Elasticity of Supply and Demand Relate to Tax Incidence?
- If demand has a lower elasticity than supply, consumers will pay most of the tax
- If supply has a lower elasticity than demand, producers will pay most of the tax
Consumer Surplus
The monetary difference between the price a consumer is willing to pay for an additional unit of a good and what the consumer actually pays
Marginal Willingness to Pay
As more of a good is consumed, the willingness to pay falls and the consumer surplus decreases
How does a lower price affect consumer surplus?
Increases consumer surplus and allows people to buy more units
Producer Surplus
Difference between what a producer is paid for a good and the cost of production
Where on the supply / demand graph is producer surplus?
Above the supply line but below the market price line
Total Welfare Gains
The sum of the producer and consumer surplus
Deadweight Loss
Net loss of total surplus that results from the misallocation of resources
Market Efficiency occurs when?
MC=MB
What is a need?
Something people will give up everything for
No substitutes
Ignores scarcity
Utility
The relative levels of satisfaction that consumers get from the consumption of goods and services
Util
One unit of satisfaction
Total Utility
The total Amount of Satisfaction derived from the consumption of a certain number of units of a good or service
Marginal Utility
Extra satisfaction generated by an additional unit of a good that is consumed in a particular time period
