Market Efficiency and Failure Flashcards
Below the demand curve and above the equilibrium price
Consumer surplus
Below the equilibrium price and above the supply curve
Producer surplus
Sum of consumer and producer surplus; measure of total welfare trade creates
Economic surplus
Value of economic surplus that’s foregone when market isn’t allowed to adjust to competitive equilibrium
Deadweight loss
Producers always lose when there is a…
Binding price ceiling
Market where demand and supply curves represent the benefit and costs to only consumers and producers
Private market
Cost to producer of an additional unit
Private marginal cost
Benefit to consumer of an additional unit
Private marginal unit
Cost of an additional unit imposed on people instead of producers
External marginal cost
Benefit of an additional unit enjoyed by people other than the direct consumer
External marginal benefit
Benefit enjoyed by or cost imposed on 3rd party uninvolved in production or consumption
Externality
Cost to society of producing an additional unit; private marginal cost + external marginal cost
Social marginal cost
Full benefit to society of consuming an additional unit; private marginal benefit + external marginal benefit
Social marginal benefit
Unpaid benefit enjoyed by 3rd party indirectly involved in production or consumption of a good
Positive externality
Demand for good that only considers private benefits
Private demand
Demand for good that reflects private and external benefits
Social demand
A characteristic where the consumption decreases the quantity available for others
Rival
Doesn’t diminish the amount available for others
Nonrival
People can be excluded from consuming
Excludable
People cannot be easily prevented from consuming
Nonexcludable
Rival and excludable
Private good
Nonrival and nonexcludable
Public good
Governments can provide public goods by forcing people to buy with…
Taxes
