Ch. 7 Flashcards
(9 cards)
What are welfare economics?
The study of how the allocation of resources affects economic well-being.
What is willingness to pay?
The maximum amount that a buyer will pay for a good.
What is consumer surplus?
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. (like if someone is willing to pay $100 for something but only ends up paying $80, they have a $20 benefit)
How can we calculate consumer surplus from a demand curve?
The area below the demand curve and above the price measures the consumer surplus in a market.
What does consumer surplus measure?
Our goal in developing the concept of consumer surplus is to make judgements about the desirability of market outcomes, as consumer surplus measures the benefit that buyers receive from a good as the buyers themselves perceive it.
How can you measure producer surplus from a supply curve?
The area below the price and above the supply curve measures the producer surplus in a market. The height of the supply curve measures seller’s costs, and the difference between the price and the cost of production is each seller’s producer surplus.
What is producer surplus?
The amount a seller is paid for a good minus the seller’s cost of providing it
What is efficiency?
The property of a resource allocation of maximizing the total surplus received by all members of a society.
What is equality?
The property of distributing economic prosperity uniformly among members of society
