Ch. 7 Market Efficiency and Failure Flashcards
Positive Analysis
Describes what is happening, explains why or predicts what will happen
Normative Analysis
Prescribes what should happen, which involves value judgements
Economic Efficiency
An outcome is more economically efficient if it yields more surplus
Economic Surplus
The total benefits minus total costs flowing from a decision; how much it improves your well-being
Efficient Outcome
Yields largest possible economic surplus; do not make everyone happy
Consumer Surplus
The economic surplus you get from buying something
Producer Surplus
The economic surplus you get from selling something
Efficient Production
Producing a given quantity of output at the lowest possible cost
Efficient Allocation
Allocating goods to create the largest economic surplus; each good goes to the person who will gain most marginal benefit
Efficient Quantity
Quantity that produces largest economic surplus
Rational Rule for Buyers
Produce a good if its marginal benefit is greater than or equal to the marginal cost
Market Failure
When forces of supply and demand lead to an inefficient outcome
Deadweight Loss
How far economic surplus falls below the efficient outcome
Economic Surplus of Efficiency - Actual Economic Surplus
Distributional Consequences
Who gets what
