Are 201- Ch. 7

Front 1

___=idea that the free interaction of ppl in a market economy leads to a desirable social outcome; coined by adam smith

Back 1

invisible hand

Front 2

___= model that assumes utility maximization on the part of consumers and profit maximization on the part of firms, along w competitive markets and freely determined prices

Back 2

competetive equilibrium model

Front 3

___= the price at which quantity supplied equals quantity demanded

Back 3

equilibrium price

Front 4

___= a situation where quantity supplied is greater than quantity demanded

Back 4

surplus

Front 5

___= situation in which quantity demanded is greater that quantity supplied

Back 5

shortage

Front 6

___= situation in which it is not possible to make someone better off without making someone else worse off

Back 6

pareto efficient

Front 7

__= conclusion that a competetive market results in an efficient outcome; called the "invisible hand theorem"
-definition of efficiency used in the theroem is pareto efficiency

Back 7

first theorem of welfare economics

Front 8

___= this theorem states any pareto efficient outcome can be obtained via a competitive market

Back 8

2nd theorem of welfare economics

Front 9

___= disparity in levels of income among individuals in the economy
-goal is to reduce this in most economic systems

Back 9

income inequality

Front 10

the ____ consumer/producer surpluses are, the better ppl are

Back 10

larger

Front 11

___= measuring waste from inefficiency
-loss in producer and consumer surplus due to an inefficient level of production
\-the more elastic, the greater the loss

Back 11

deadweight loss

Front 12

___ surplus= difference btw price willing to pay and market price

___ surplus= difference btw market price and price required to supply unit

Back 12

consumer surplus

producer surplus