Efficiency Flashcards
(10 cards)
What are the 9 methods used to allocate scarce resources
Market price
Command
Majority rule
Contest
First come first served
Sharing equally
Lottery
Personal characteristics
Force.
What is marginal benefit
The value of one more unit of a good or service
How do we measure value
The maximum price a person is willing to pay (WTP)
What is consumer surplus
Benefits in excess of price paid
What is marginal cost
The cost of producing one more unit of a good or service and the minimum price that a firm is willing to accept.
What is producer surplus
A gain in excess of marginal cost.
There is an efficient allocation of resources where…
Quantity demanded equals quantity supplied and marginal social benefit equals marginal social cost.
What is market failure
A situation in which a market delivers an inefficient outcome
What are the two causes of market failure
Underproduction and overproduction
What are the 6 obstacles to efficiency that bring market failure and create deadweight loss
Price and quantity regulations
Taxes and subsidies
Externalities
Public good and common resources
Monopoly
High transaction costs
