Ch 4 Flashcards
Willingness to pay
Maximum price an individual is willing to pay for a good or service
Less than or equal to marginal benefit
Marginal benefit
Additional benefit derived from consuming one additional unit of a good or service
Total benefit
Sum of marginal benefit at the specific quantity of good or service consumed in market
Consumer surplus
Net gain from the purchase of a good or service measured by buyer’s willingness to pay minus price paid
Marginal cost
Additional cost incurred by producing an additional unit of good or service
Total cost
Sum of marginal cost at the specific quantity of a good or service produced and sold in a market
Producer surplus
Net gain from selling a good or service measured by price received minus marginal cost
Total surplus
Total net gain to groups of both consumers and producers from trade
Total Surplus (TS) =
Total benefit - total cost
Consumer surplus + producer surplus
Deadweight loss
Loss in total surplus that occurs when the efficient equilibrium quantity is not achieved or is not achievable.
When is total surplus maximized?
MB = MC
Pareto efficiency
State of allocation of resources where it is impossible to make someone better off without making someone else worse
Efficiency
Best way to achieve a goal once that goal has been determined so that net benefit is maximized
Equity
Issues of fairness or the distribution of wealth in society
