Econ Ch. 4 – Flashcards

-the difference between the highest price a consumer is willing to pay for a good or service and the actual price a consumer pays -the area below the demand curve above the price for all units purchased (market price) -dollar benefit consumers receive from buying goods or services

net total

all of the area below the demand curve (when the price is not zero, it is the area below the demand curve and above the market price

1/2 X base X height

the additional benefit to a consumer from consuming one more unit of a good or service

-a legally determined maximum price that sellers may charge -market price cannot go above (rent control)

-shortage which causes other problems other than loss of Cs and Ps. (black market)

-a legally determined minimum price that sellers may receive -market price cannot go below (minimum wage)

Pf needs to be above market equilibrium price

-producers want to sell Qs buyers want to buy Qd, that leaves the market with a surplus where Qs > Qd -too many products to sell at Pf (minimum wage, the surplus is unemployed workers - more workers than jobs)

price ceiling

price floors

price floor

reduced (price ceillings and price floors reduce the total benefit to consumers and firms from buying and selling in the market

Pf(Qs - Qd) -very expensive

-floors - producers benefits -ceilings - consumers benefits

the additional cost to a firm or producing one more unit of a good or service

-the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives -area below market price and above the supply curve for all units sold -dollar benefit firms receive from selling goods or services in a particular market

net

all the area below the market price (when cost is not zero, the producer surplus is the area below the market price and above the supply curve)

minimum price required to sell

the sum of consumer surplus and producer surplus

equilibrium

-the reduction in economic surplus resulting from a market not being in competitive equilibrium -loss of total surplus that results from not selling all units where MB is greater than or equal to MC

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

a market in which buying and selling take place at prices that violate government price regulations

the actual division of the burden of a tax between buyers and sellers in a market [rectangle of area with height P2-P* (consumer) and P*-P3(supplier, price pt on S1) and base Q2]

the govt collects a tax from the buyers of a good or from a seller

-benefit to consumers and producers that we can measure. these benefits are called "surplus" (not surplus of quantity supplied over quantity demanded: consumer surplus, producer surplus, total surplus - all welfare measures that allow us to compare diff market events)

different markets

-combination of consumer and producer surplus -need to know what consumers are willing to pay: demand and supply

demand

supply

cost of producing it

-productive -allocative

producing at lowest cost

-economically efficient: produce and purchase until marginal benefit is equal to marginal cost -everyone who benefits more/at least as much as it costs to produce the unit gets to purchase one -total surplus is maximized, MB=MC, CS+PS is maximized

MB = MC - is allocatively efficient -there is no unit not sold where MB greater than or equal to MC

-not being allocatively eff -sold too many/too few units -total surplus decreased/not maxed -if we were allocatively eff DWL = 0

-increase in cost of production which causes supply curve to shift to the left for a decrease in the supply -consumers and producers worse off -govt collects tax revenue equal to (Pd - Ps)Qm

-amt of tax is Pd - Ps -consumers pay Pd - P* -producers pay P* - Ps -pay pays more depends on how sensitive they are to a price change (sellers often end up paying more)

a market with many buyers and sellers

efficient level of output, at which marginal benefit equals marginal cost

economic surplus, or total net benefit to society from the production of a good or service

government intervention in agriculture -(often results in large surpluses)

government pays farmers cash payments

-some people win -some people lose -there is a loss of economic efficiency

are paying less for rent becuase they live in rent controlled apartments or the landlords who illegal rents their places for higher

the landlords of the rent controlled apts who abide by the law and renters who are unable to find apartments to rent at the controlled price

fewer apts are rented than would be in a competitve market

what is

what should be

less of that good or service will be consumed

consumer and producers surplus

imposes a small excess burden relative to the tax revenue it raises

payroll tax

workers

the benefit in money terms that the consumer receives by consuming that unit

value the goods the most are able to buy them (because once cheaper, others will buy them even they dont need them)

producers

consumers

shift to the left for a decrease in supply

Pd - Ps

Pd - P*

P*- Ps

how sensitive they are to a price change