Chapter 5 Flashcards
negative-sum environment
a situation in which the sum of gains and losses over all
people is negative in value
zero-sum environment
a situation in which the sum of gains and losses over all
people is exactly equal to zero
positive-sum environment
a situation in which the sum of gains and losses over all
people is positive in value
win-win outcome
an outcome for which all people are better off than they would
have been if the outcome was not realized (i.e., everybody “wins”).
win-lose outcome
an outcome for which some people are better off and some people
are worse off than they would have been if the outcome was not realized (i.e., some
people “win” but other people “lose”).
consumer’s surplus
a measure of the net gain that a buyer realizes from making a
purchase, equal to the difference between his reservation price for the item and the
price he actually pays for the item.
producer’s surplus
a measure of the net gain that a seller realizes from making
asale, equal to the difference between the price she actually receives for the item and
her reservation price for the item
social surplus
a measure of the net gains to society from a trade, equal to the
summation of the individual gains (or losses) from the trade over all members of
society.
total social surplus
a measure of the total gains from trade realized by society,
defined as Social Surplus, added over all units traded.
total consumers’ surplus
a measure of the total gains from trade realized by all
consumers, defined as each individual’s Consumer’s Surplus, added over all units
purchased
total producers’ surplus
a measure of the total gains from trade realized by all
sellers, defined as each individual’s Producer’s Surplus, added over all units sold.
efficient level of trade
the level of trade which maximizes Total Social Surplus
deadweight loss
the difference between maximum possible Total Social Surplus and
realized Total Social Surplus. by construction, it is zero at the efficient level of trade and is positive at any other level of trade
open-ended fallacy
a logical error whereby someone incorrectly concludes that
simply because there are benefits (to some people) from higher levels of an
activity, that more of the activity is always better.
