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8 Cards in this Set
- Front
- Back
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Cost and the Willingness to Sell |
Sellers are willing to offer goods for sale if the price they receive exceeds the cost. Cost is a measure of a firms willingness to sell their products. |
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Producer surplus |
If a producer is able to sell a product at a price that is higher than the lowest amount they would be willing to sell that product for, then they will receive some benefit. We can say that the producer receives producer surplus. Producer surplus is the amount a seller is paid minus the cost of production. Producer surplus measures the benefits to sellers of participating in a market. The total producer surplus in a market is the value of the sum of all the individual producer surplus. |
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Using the Supply Curve to Measure Producer Surplus |
Producer surplus is closely related to the supply curve. The producer surplus is the area below the price and above the supply curve. We use consumer surplus to measure the well being of buyers. |
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Deadwight loss |
Inefficiencies and changes in welfare can be estimated by referring to the deadweight loss. The deadweight loss is the fall in total surplus that results when a tax (or some other policy) disorts a market outcome. This can be considered by calculating the changes in both producer and consumer surplus as a result of the tax or policy change minus the benefits. |
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Tax- Consumer Surplus |
The tax causes consumer surplus to fall by the area B + C and producer surplus to fall by the area D + E. Tax revenue rises by the area B + D. The tax makes buyer and sellerd worse off and the government better off. |
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Change in Total Welfare |
The change in total welfare includes the change in consumer surplus (which is negative), the change in consumer surplus (which is also negative), and thr change in tax revenue (which is positive) |
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Negative Externalities |
Aluminium factories emit pollution: this pollutant may pose a health risk for those who breathe the air, it is a negative externality. Because of the externality, the cost to society of producing aluminium is larger than the cost to the aluminium producers. |
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Social cost curve |
The social cost curve is above the supply curve because it takes into account the external costs imppsed on society by aluminium producers. At every price the social cost is higher than thr private cost so we can say that the social cost curve is the sum of the private costs and the social or external cost. The difference between the two curves reflects the social or external cost of the pollution emitted. |
