Market Efficiency Flashcards
what is marginal benefit
maximum amount consumers are willing to pay for an additional g/s
what is consumer surplus and how do you calculate it
the difference between what the consumer is prepared to pay vs what they actually pay in the market
CS = total benefits - expenditure
CS increases if price falls
what is marginal cost
change in cost when an additional unit is produced
what is producer surplus and how do you calculate it
the difference between what a producer is willing to recieve (production costs) vs what they actually recieve (selling price)
PS = total revenue - cost of production
PS increases if price rises
what is total surplus and how do you calculate it (draw it on a graph)
measure of net benefits of goods/services
TS = CS + PS
what is DWL
when TS is reduced because of
- underproduction - monopoly/mkt power
- overproduction- polluting from industry
gov policies that reduce efficiency : explain market restriction and it’s effect on equilibrium
gov restricts supply = inefficient and non comp mkt which lowers TS creating DWL.
no resriction - competitive equilibrium and P/Q efficient, TS Maxmised
restriction - price rises, quantity falls shortage, TS decreases creating DWL
gov policies that reduce efficiency: explain market restrictions to do with the taxi market
gov increased cost of tax license which restricted supply = shortage
gov policies that reduce efficiency: what are price controls
gov restricts by selling above/below eql
gov policies that reduce efficiency: what is a price ceiling, what are 4 effects and who do they benefit (draw on graph)
maximum price sellers are allowed to charge below equilibrium price
- shortage - increase CS< decrease PS = DWL - supplier sells less and earns less - consumers miss out due to small supply
made to benefit low income earners
gov policies that reduce efficiency: what is a price floor, what are 4 effects and who do they benefit (draw on graph)
minimum price sellers are allowed to chage above equilibrium price
- surplus - increase PS < decrease CS = DWL - suplliers earn more and make less - consumers pay more and get less
made to benefit low income producers
gov policies that reduce efficiency: explain the effect TAXES have on consumers and producers (does it create DWL?) draw on graph
consumers - must pay more and recieve less (fall CS)
producers - recieve less and sell less (fall PS)
DWL = costs > benefits
gov policies that reduce efficiency: explain the effect SUBSIDY has on consumers and producers (does it create DWL?) draw on graph
consumers - pay less and recieve more
producers - recieve more sell more
DWL = costs > benefits
what is equity
how socities production/income (economic pie) is divided amongst the population equally
what is efficiency
increase the size of the economic pie
