Measuring Economic Performance Flashcards
What is consumer surplus?
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Who receives consumer surplus?
The buyer.
In relation to the demand curve and price, how is consumer surplus measured?
The area below the demand curve and above the price measures the consumer surplus in a market.
What is producer surplus?
The amount a seller is paid for a good minus the seller’s cost of providing it.
Who receives producer surplus?
The seller.
In relation to the supply curve and price, how is producer surplus measured?
The area below the price and above the supply curve measures the producer surplus in a market.
How is total surplus determined?
The total value to buyers of the goods, as measured by their willingness to pay, minus the total cost to sellers of providing those goods.
In what ways might government or policy makers make use of surplus measures?
To measure the economic well-being of a society, in terms of efficiency and equality. (i.e. maximizing total surplus received (efficiency) and distributing economic prosperity (equality) uniformly among the members of society
What is the difference between macroeconomics and microeconomics?
Macroeconomics- The study of economy-wide phenomena, including inflation, unemployment, and economic growth. Microeconomics- The study of how households and firms make decisions and how they interact in markets.
Why must income equal expenditure in an economy as a whole?
An economy’s income is the same as its expenditure because every transaction has two parties: a buyer and a seller.
Define gross domestic product (GDP). What does it measure?
The market value of all final goods and services produced within a country in a given period of time.
Describe the four components of GDP and explain how they affect aggregate demand.
(1) Consumption (2) Investment (3) Govt purchases (4) Net exports
Why are transfer payments such as social security not counted in government expenditures?
Because they are not made in exchange for a currently produced good or service. Transfer payments alter household income, but they do not reflect the economy’s production.
What is the difference between real and nominal GDP? Why do we need to measure GDP in real terms?
Real GDP- The production of goods and services valued at constant prices, ie. $1 Nominal GDP- The production of goods and services valued at current prices, i.e. $1 in 2013, $2 in 2014, etc… Because (answer) GDP is not affected by changes in prices, changes in (answer) GDP reflect only changes in the amounts being produced.
What is welfare economics
Studies how the allocation of resources affect economic well-being
