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15 Cards in this Set
- Front
- Back
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technical efficiency
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getting the most out of an hours worth of labor-producing at the lowest possible cost
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allocative efficiency
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pareto efficiency, getting the mix of output right - producing the right amount of products in a varying economy-the mix that maximizes our economic well-being-the greatest net benefit
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a market has pareto efficiency if..
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-it's competitive and can reach equillibrium
-informed buyers and sellers -no external costs or benefits -all units will be produced whose marginal benefit is greater than or equal to marginal cost pareto happens automatically if all of these are satisfied |
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total surplus
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excess benefit over cost to buyer and seller distributed between buyer and seller
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consumer surplus
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the difference between price and a buyers reservation price
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producer surplus
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the difference between cost and a sellers reservation price
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pareto inefficiency (deadweight loss)
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-lost out on generating MB&MC
-loss of net benefit -loss of total surplus -not satisfying three requirements |
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deadweight loss (pareto inefficiency)
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the reduction in total economic surplus that results from the adoption of a policy
-more inelastic the s or d curve? less deadweight loss |
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what causes deadweight loss?
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price ceiling/floor
price subsidy tax uninformed buyer or seller |
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market in equilibrium
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MB=MC
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tax incidence
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the tax burden-who pays the tax: buyer or seller? it depends on elasticity
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inelastic demand curve
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the tax burden falls to the buyer
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inelastic supply curve
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the tax burden falls to the seller
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equity
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-markets assume a given distribution of attributes
-equity goals are normative and often in conflict (adjunct vs full-time, equal pay for equal work, etc) |
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efficiency
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making the economic pie as large as possible, avoid policies that shrink
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