Economic Welfare Flashcards
Price floor
When is or isn’t binding?
Legal minimum price of a product
Not binding when set below equilibrium
Binding when set above equilibrium
Taxes and tax incidence
Discourage market activity
Decrease quantity of products sold
Tax incidence is tax sharing among market participants ; falls heavier on the more inelastic side
Buyers pay more, sellers receive less
Consumer surplus
Is the willingness of a buyer to pay for a product minus what he really pays for it
AREA BELOW THE CURVE AND ABOVE Equilibrium PRICE
Producer surplus
Amount seller paid for a product minus the cost of the product
AREA BELOW THE PRICE AND ABOVE THE SUPPLY CURVE
Price ceiling
When is or isn’t binding?
A legal maximum price of a product
Not binding when set above equilibrium
Binding when set below equilibrium
