Module 6 Video/ Other Flashcards
Prices need to be allowed to adjust to be
efficient
The demand curve is also called the
marginal benefit curve
consumer surplus on a graph is the
area above the market price but below the demand curve
producer surplus is the area on the graph that is
below the market price but above the supply curve
What is it called when you add the consumer and producer surplus together?
social surplus (supposedly the net benefit to SOCIETY)
What is the surplus we lose if the market isn’t efficient called?
DWL (deadweight loss)
Our market is efficient when our
marginal benefit is equal to our marginal cost (on a graph that happens at equilibrium)
Imperfect Information
means that everybody is equally in the dark
-Neither the buyer nor the seller have all the information for the exchange. (Buying a bad car that’s a “lemon”)
Both of them think it’s a good quality car if it’s made just like all the other cars, but something negative happened when they were being produced that means they’re not performing optimally. No one was doing it intentionally though.
My teacher is claiming that this is uncommon because you can return items, read reviews, have contracts, etc.
Asymmetric Information
when one of the parties has more information about the quality or price of the good than the other (like selling your car that you know is a lemon without telling the person you’re selling it to)
My teacher is claiming that this is uncommon because you can return items, read reviews, have contracts, etc.
Reducing the effect of asymmetric information
CarFax
Collateral/Cosigners
Professional licenses
How do we reduce moral hazard?
Cost sharing
- Coinsurance
- Copayments
- Deductibles
These things encourage us to make different decisions with our health and auto insurance.
How do we reduce adverse selection?
Adverse selection does not happen much now because there is more information on all of us.
Solutions:
Grouping people into high and low risk groups without perfect accuracy.
Companies rewarding those who are safe drivers or who do certain things to improve their health
