Markets And Government Flashcards
What’s consumer surplus?
The difference in what consumers are willing to pay and the price they actually pay. Their “savings”.
What is producer surplus?
When producers sell a good at a higher price than what they were originally willing to sell.
What is the “total surplus”
The sum of the consumer surplus and the producer surplus
What is dead weight loss?
The loss of consumer surplus and producer surplus caused by the inefficiency of a market not operating at equilibrium
What do economists call freely functioning markets
Laissez-faire
What are price ceilings and price floors?
A price ceiling is the maximum legal price a market is allowed to sell and a price floor is the lowest price
What is “misallocation of resources?”
When a good or service is not consumed by the person who values it the most, typically occurs from a price ceiling creating a shortage.
A price ceiling being to low would result in a ________, and a price floor being to high would result in a _________.
Shortage, surplus
When does market failure occur?
When there is discrepancy between what a free market says should happen, and what society believes should happen (Shark fin example)
What are the 4 causes of market failure
Lack of competition, mismatch of information (asymmetric information), existence of externalities, and the existence of public goods ( nonrival and non excludable goods)
What is price gouging?
Rising prices in response to a demand shock (sudden increases in demand) usually resulting from a crisis or disaster
What does it mean when a price floor or ceiling is “binding”
That it has a relevant impact
What is asymmetric information?
When one party in a transaction, either the buyer or seller, has more information than the other
What is the difference between excludable and non-excludable goods.
An excludable good is a good where its possible to prevent people from using it. For a non-excludable good, you can’t stop people from using it (Like the air we breathe)
What is the difference between a rivalrous and non-rivalrous good?
A rivalrous good is when consumption of that good decreases the ability of others to use it (like a burger you just ate.) a non-rivalrous good is when the consumption of it doesn’t stop other peoples consumption of it
