Week 4 Flashcards
(29 cards)
how can government intervention in a market be measured
by the concepts of consumer, producer and economic surplus
what is consumer surplus
consumer surplus is the difference between the highest price a consumer is willing to pay and what the consumer actually pays
can the demand curve be used to measure consumer surplus
yes it can because it shows the willingness to purchase a product at different prices
is the demand curve also a marginal benefit curve
yes the demand curve is also a marginal benefit curve each price represents marginal benefit
what is the total amount of consumer surplus
equal to the area below the demand curve and above the market price
what is producer surplus
is the difference between the lowest price a firm would have been willing to accept and the price it actually receives
is the supply curve also a marginal cost curve
yes because each price indicates the marginal cost for a firm
what is the total amount of producer surplus
the total amount of producer surplus is equal to the area above the supply curve and below the market price
what do consumer and producer surplus measure
consumer and producer surplus measure the net total benefit for consumers and producers from participating in a market
what is equilibrium in a competitive market
the point where MB = MC and efficiency is maximised
what is economic surplus
the sum of producer and consumer surplus
what is a deadweight loss
deadweight loss is the reduction in economic surplus resulting from a market not being in competitive equilibrium
what is economic efficiency
is where MB of the last unit produced is equal to the MC and where the sum of producer and consumer surplus is maximised
what is a price floor
a price above what the competitive equilibrium price is
are price floors more beneficial for consumers or producers
producers
what is a price ceiling
a price ceiling is a price below what the competitive equilibrium price is
are price ceilings more beneficial for consumers or producers
consumers
why do black markets occur in markets with a price ceiling
because consumers due to a shortage of goods are willing to pay more which reduces consumer surplus and increases producer surplus
what happens with price floors
results in a surplus of goods due to excess supply at high price
what happens with price ceilings
results in a shortage due to increased demand at low prices
what happens to supply when government introduces a tax
less of the good or service tax will be produced
what is tax revenue collected equal to
the amount of the tax times the quantity of units sold at the sale price.
who benefits from a tax producers or consumers
consumers and producers both lose from tax
what is the true burden of a tax
not just the amount consumers and producers pay but also the deadweight loss
