Section 4 Flashcards
Efficiency is
If an allocation of resources maximize the total surplus
In efficient is
If a good is not being produced by the sellers with the lowest cost. Or
If the good is not being consumed by the buyer who values it most highly
What is equity
Fairness of the distribution of well-being among the various members of society(buyers and sellers)
Supply is
The cost to sellers
Demand is
The value to Buyers
What decreases welfare
- Taxes
2. Trade restrictions
What is deadweight loss
Loss of consumer and producer surplus from a tax that exceeds the revenue raised by government
Why is there deadweight loss
It’s due to change in the incentives
It’s the changing behaviors of buyers and sellers
When is deadweight loss mall
When the supply is relatively inelastic
Or
When the demand is relatively inelastic
When is deadweight loss Large
When supply is relatively elastic
Or
When demand is relatively elastic
What is the Laffer curve
Hi tax rates cause less work
Low tax rates cause more work
When taxes are too high it discourages hard work
Lower taxes give people the incentive to work harder
Lower taxes will raise economic well-being and perhaps tax revenue
With the Laffer curve first the revenue rises with the low tax then it hits and Max and then it falls again with the higher tax
Producer and consumer surplus is a good measure of
Economic well-being
