Efficiency Flashcards
Deadweight loss
Avoidable decrease in total surplus caused by a factor preventing the market from producing its optimal output
Consumer surplus
The difference between what the consumer was willing to pay and what they actually paid
Types of government intervention
Market restrictions, price control, tax, subsidies
Price ceiling
Legislated maximum price below equilibrium
What is the intention of a price ceiling?
Consumer equity for accessibility to low income earners
Price floor
Legislated minimum price
What is the aim of a price floor?
Support low income producers, often local agriculture
Tax
Compulsory contributions to government revenue
What are taxes levied upon?
Goods & services, income, profits
Economic theory
Determines the best way to implement tax money
Subsidies
Money provided by the government to help reduce costs of goods and services
Why are subsidies inefficient?
The cost is greater than total surplus
Market restrictions
Limiting the supply of a good
Producer surplus
Difference between willingness to receive and what they actually receive
Why must consumer and producer surplus be equivalent for an efficient market?
The equilibrium is produced, total surplus is maximised
