economic efficiency Flashcards
what are economic institutions a result of?
political institutions
what is the consumer surplus?
the difference between the consumers willingness to pay and the market price
what is the producer surplus?
the benefit that lower cost producers enjoy by selling at the market price
what is the welfare benefit of a competitive market?
the combination of the consumer and producer surplus
if a market is efficient does that mean it is equitable?
no, an efficient market is maximizing welfare but not always equitable in the distribution
in a perfectly competitive market, at what point is welfare maximized?
at the equilibrium point
how will a price ceiling below the market price impact the consumer surplus and the producer surplus?
it will shrink the producer surplus and increase the consumer surplus, and create some deadweight loss in the process
how will a price celling below the market price impact quantity supplied and quantity demanded?
it will increase the quantity demanded and decrease the quantity supplied causing a shortage
what is deadweight loss?
the opportunity for trades between sellers and buyers that are lost due to price controls
how does a price floor above the market price impact the producer surplus and the consumer surplus?
it will decrease the consumer surplus and increase the producer surplus, as well as make some deadweight loss
how does a price floor above the market price impact the quantity demanded and quantity supplied?
the quantity demanded drops and the quantity supplied increases, causing a surplus of goods
how pays a tax increase?
it doesn’t matter who pays it because it impacts the consumer surplus and the producer surplus the same
how does a tax imposed on producers impact the economy?
it shifts the supply curve left
how does a tax imposed in consumers impact the economy?
it shifts the demand curve left
why would the government impose a tax or price ceiling?
to help with the equity of the economy
