Efficiency Quiz Flashcards
maximum prices consumers are willing to pay minus the price that they actually pay for that quantity
consumer surplus
consumer surplus+ producer surplus
total surplus
total surplus is a measure of
market efficiency
price received for a good minus the minimum price that the supplier was willing to sell the good for
producer surplus
quantity sellers are willing to offer of a good at each price, lowest P value
supply
actual price received by sellers in a market
Pa
additional cost of each unit of a good
marginal costs based on opportunity cost
maximum price at which a consumer would buy a good
willingness to pay
net gain to an individual buyer from that purchase of a good, equal to buyer’s willingness to pay minus the price paid
individual consumer surplus
sum of all individual consumer surpluses of all the buyers of a good in a market
total consumer surplus
where is total consumer surplus on a graph
area below the demand curve but above the given price
lowest price at which a seller is willing to sell a good
seller’s cost
net gain to an individual seller from selling a good, equal to the difference between the price received and the seller’s cost
individual producer surplus
sum of all the individual producer surpluses of all of the sellers of a good in a market
total producer surplus
where is total producer surplus on a graph
area above the supply curve but below the given price
buyers and sellers meet at a specific price that benefits both
mutual gains
when the total surplus is maximized in a market, the market is
efficient
as the price goes up, consumer surplus
decreases
as the price goes down, consumer surplus
increases
as the price goes up, producer surplus
increases
as the price goes down, producer surplus
decreases
decrease in equilibrium quantity causes decrease in total surplus
deadweight (social) loss
market transactions are the
total surplus
how to reduce total surplus
prevent any sale that would have occurred
efficient markets allocate goods to consumers who
are willing to pay the most, value the good the most
efficient markets allocate sales to sellers who
have the lowest prices, most value the right to sell the good
efficient markets ensure that every consumer values the good
more than the seller
efficient markets ensure that anyone who does not buy a good values it
less than the seller
rights of owners of valuable items to dispose of them as they chose
property rights
any piece of information that helps people make better economic decisions
economic signal
when some people could be made better off without making other people worse off
inefficient
type of market failure, when a firm can change the market price alone
market power
type of market failure, when actions have effects on the welfare of others
externalities
type of market failure, when there are incomplete property rights
public goods and common resources
type of market failure, when there is wasted valuable human capital due to opinions
discrimination
caveats to market efficiency
- may not be fair/equitable
- only efficient under certain conditions (property rights, economic signals)
- not every individual is happy
side effects of actions that impose costs on or provide benefits for others but do not have an economic incentive to take these into account
externalities
additional cost imposed on society as a whole by an additional unit of externality
marginal social cost
additional gain to society as a whole by an additional unit of an externality
marginal social benefit
quantity of an externality that society would choose if all the costs and benefits of it were fully accounted for
socially optimal quantity
uncompensated cost that an individual or firm imposes on others
negative externality
uncompensated benefit that an individual or firm imposes onothers
positive externality
payment designed to encourage activities that yield external benefits
pigouvian subsidy
external benefit that results when knowledge spreads among individuals and firms
technology spillover
good that supplier can prevent people who do not pay for it from consuming it
excludable good
when a unit of a good cannot be consumer by more than one person at a time
rival in consumption
good that a supplier cannot prevent consumption by people who do not pay for it
nonexcludable good
when more than one person can consume the same unit of a good at the same time
nonrival in consumption
excludable and rival in consumption
private good
nonexcludable and nonrival in consumption
public good
nonexcludable and rival in consumption
common resources
excludable and nonrival in consumption
artificially scarce good
with a nonexcludable good, when individuals are not willing to pay for their own consumption and instead add on to anyone who does pay
free-rider problem
with common resources, individual uses a good until their marginal benefit of its use is equal to their own marginal cost, ignoring that this depletes the amount of the resource remaining for others
overuse
when not everyone has all the information
asymetrical information
demonstrates what is happening with the internal costs/benefits
private curve
demonstrates internal and external costs/benefits
social curve
as long as there are no externalities, an activity will continue as long as the marginal benefits
are greater than the marginal costs
for the last unit of a good that is produced
marginal benefit equals marginal costs
