Microeconomics LS13-LS16 Flashcards
What is consumer surplus?
The extra amount of money consumers are prepared to pay for a good/service above what they actually pay.
Satisfaction gained from good/ service in excess of amount paid for it
What is producer surplus?
The extra amount of money paid to producers above what they are willing to accept for a good/service.
Extra amount of earning obtained above minimum requires to supply a good
What is the incidence of an indirect tax?
Refers to the distribution of tax between consumers and producers.
What is the incidence of a subsidy?
Refers to how the gains of a subsidy are distributed between consumers and producers. Depends on the elasticity of supply and demand.
When demand is price elastic, what happens?
Burden of tax falls mostly on producers.
Most of gains from subsidy goes to producers.
When demand is price inelastic, what happens?
Burden of tax falls mostly on consumers.
Most of gains of subsidy goes to the consumer.
What is the equation for tax revenue?
Tax revenue= tax rate x quantity sold
What is the equation for government spending?
Government spending= subsidy rate x quantity sold
What is the income effect?
Assuming a fixed level of income, income effects means that as price falls, the amount consumers can afford increases, so demand increases.
What is marginal utility?
Utility/ satisfaction obtained from consuming one extra unit of good/ service.
What is diminishing marginal utility?
As successive units of goods are consumed , the marginal utility gained from each extra unit will fall.
What is cross price elasticity of demand (XED)?
Measures the responsiveness of demand for one good to changes in price of another good.
What is the equation of XED?
XED= percentage change in quantity demanded for product A/ Percentage change in price of product B
What do complement and substitute goods have?
Substitute goods- positive XED
Complement goods- negative XED
What is income elasticity of demand (YED)?
Measures the responsiveness of demand to changes in income.
