Test 2 Flashcards
Price ceiling
A legal maximum on the price at which a good can be sold
Rent control, gasoline, loans
Price floor
A legal minimum on the price at which a good can be sold
Minimum wage
Tax incidence
Manner in which the burden of a tax is shared among participants in a market
Consumer surplus
Amount a buyer is willing to pay for a good minus amount the buyer actually pays for it.
Measure the benefit buyers receive from a good as they perceive it (exception drug addicts) and benefit from participating in a market.
Related to demand curve.
Producer surplus
Measure of willingness to sell
Profit
Willingness to pay
Used to create a demand schedule
Deadweight loss of taxation
Fall in total surplus that results from a market distortion, such as a tax
Tax revenue = T * Q
Tariff
Tax on imports
Raises domestic price above world price by the amount of the tariff
International trade benefits
Increased variety of goods
Lower costs through economies if scale
Increased competition
Enhanced flow of ideas
Arguments for restricting trade
The job argument The national-security argument The infant-industry argument The unfair-competition argument The protection-as-a-bargaining-chip argument
GDP
(Gross domestic product)
The market value of goods and services sold within a country in a given year
Real GDP
The production of goods and services valued at constant price
Nominal GDP
The production of goods and services valued at current prices
Components of GDP
Y = C + I + G + NX GDP consumption Investment Government purchases Net exports
