MICRO CH 07
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18 Terms
Welfare Economics
the study of how the allocation of resources affects economic well-being
Consumer Surplus
Amount a buyer is willing to pay for a good minus amount the buyer actually pays
Measures the benefit buyers receive from participating in a market
Closely related to the demand curve
Marginal Buyer
the buyer who would leave the market first if hte price were any higher
Total Consumer Surplus
area below the demand curve & above the price
the benefit that buyers derive from a market as the buyers themselves perceive it
What does consumer surplus measure?
Cost
the value of everything a seller must give up to produce a good including opportunity cost
price > cost
seller would be eager to sell
price < cost
seller would refuse to sell
price = willingness to sell
seller would be indifferent about selling
Producer Surplus
amount a seller is paid for a good minus the seller’s cost of providing it.
measures the benefit sellers receive from participating in a market
closely related to the supply curve
Supply Curve
reflects sellers’ costs
used to measure producer surplus
Total producer surplus
area below the price and above the supply curve
measures the producer surplus in a market
Benevolent Social Planners
Hypothetical committee: all-knowing, all-powerful, well-intentioned
Want to maximize the economic well-being of everyone in society.
Total Surplus
a natural variable to consider when judging a market’s allocation of resources; ___ ___ = value to buyers - cost to sellers
Efficiency
property regarding a resource allocation of maximizing the total surplus received by all members of society.
Equality
property of distributing economic prosperity uniformly among the members of society.
Externalities
If ____ are ignored, the equilibrium in a market can be inefficient from the standpoint of society as a whole.
Market Failure
the inability of some unregulated markets to allocate resources efficiently
