Economic Efficiency, Gov't Price Setting, & Taxes

Front 1

Price Ceiling

Back 1

A legally determined max price that sellers may charge.

Front 2

Price Floor

Back 2

A legally determined min price that sellers may receive.

Front 3

When the gov't imposes a price ceiling or a price floor, the amount of economic surplus in a market is _____.

Back 3

Reduced

Front 4

Marginal benefit

Back 4

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

Front 5

Consumer Surplus

Back 5

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Front 6

Consumer Surplus

Back 6

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Front 7

Nearly all consumers in this market receive some consumer surplus from their purchases because the marginal benefit they receive is__________.

Back 7

--greater than the price they pay.

Front 8

The total amount of consumer surplus in a market is equal to the area ________________.

Back 8

--below the demand curve and above the market price.

Front 9

Consumer Surplus allows us to measure the __________________________.

Back 9

--benefit consumers receive in excess of the price they paid to purchase the product.

Front 10

Marginal Cost

Back 10

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

Front 11

Producer Surplus

Back 11

The difference between the lowest price a firm would have been willing to accept and the price it actually receives.

Front 12

Therefore, the total amount of producer surplus in a market is equal to the area _____________________.

Back 12

--above the market supply curve and below the market price.

Front 13

Equilibrium in a competitive market results in the ___________________________.

Back 13

--economically efficient level of output, where marginal benefit equals marginal cost.

Front 14

Economic Surplus

Back 14

The sum of consumer surplus and producer surplus.

Front 15

Deadweight Loss

Back 15

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Front 16

Economic Efficiency

Back 16

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.

Front 17

Equilibrium in a competitve market results in the greatest amount of _______________________.

Back 17

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

Front 18

The Gov't can intervene in 2 ways:

Back 18

1.) attempt to aid sellers by requiring that a price be above equilibrium--a price floor
2.) or to aid buyers by requiring that a price be below equilibrium--a price ceiling.

Front 19

To affect a market outcome.....a price floor must be set ___ eq price.

Back 19

--above

Front 20

..a price ceiling must be set _____ the eq. price.

Back 20

--below

Front 21

Price Floor in Ag Markets

Back 21

*Farm program--where farmers convinced the government to raise prices by setting price floors on ag products.

Front 22

Price Floor in Labor Markets

Back 22

*Min Wage--congress set a min wage so it would increas the income of low-skilled workers.

Front 23

Price Ceilings example

Back 23

Rent Controls

--price ceiling on the max rent that landlords can charge for an apartment.

Front 24

Black Market

Back 24

Buying and selling at prices that violate Gov't price regulations.

example: when producers and consumers find a way around gov't controls like price ceilings and price floors.

Front 25

The result of Gov't intervention:

Back 25

1.) some people win
2.) some people lose
3.) There is a loss of economic efficiency.

Front 26

Tax Incidence

Back 26

The actual division of the burden of a tax between buyers and sellers in a market.