Market efficiency Flashcards
Market Efficiency?
Efficiency is producing goods and services that the society at the lowest possible cost.
What is producer surplus?
Producer surplus is the difference between what producer is willing to receive (cost of production) and what they actually receive in the market.
Consumer Surplus?
Consumer surplus is the difference between what a consumer is prepared to pay and what they actually pay in the market.
Total Surplus
TOTAL SURPLUS = CONSUMER SURPLUS + PRODUCER SURPLUS
Deadweight loss
Deadweight loss is a term used when there is under or overproduction. It is a waste of scare resources and total surplus is not maximised.
Price ceiling and examples:
Price ceiling is the maximum legislated price for a good or service. healthcare, education, insulin, housing and rent
Price floor and example
Legal minimum price examples, minimum wage, agriculture
Government intervention effect on deadweight loss
When governments intervene in market they may decrease efficiency because the policy they introduce may distort the price system and lead to either under or over production
Fiscal intervention on the market examples
market restriction
price control (floors and ceilings)
Taxes on goods and services
Subsidies paid to certain industires.
Who is a price ceiling designed to benefit?
A price ceiling is designed to benefit consumers
How d consumers involve themselves in price ceilinogs
Consumers may have lobbied the government to reduce the market price for an important good or service and so maximum or ceiling price is somewhere below the equilibrium price.
