ECON 202 Quiz 3

Chapter 6 + 7

Statutory Burden

The burden of being assigned by the government to send a tax payment. If sellers of sweetened beverages are subject to a tax of 1.5 cents per ounce, the statutory burden falls on the sellers.

Economic Burden

The burden created by the change in the after-tax prices faced by buyers and sellers. Sellers may be able to push some of the tax burden onto consumers in the form of a price increase.

Tax Incidence

The division of the economic burden of a tax between buyers and sellers

Subsidies

A payment made by the government to those who make a specific choice

Price Ceiling

A maximum price that sellers can legally charge

Price Floor

A minimum price that sellers can legally charge

Binding Price Ceiling

A price ceiling that prevents the market from reaching the market equilibrium price, meaning the highest price sellers can charge is set below the equilibrium price

Binding Price Floor

A price floor that prevents the market from reaching the equilibrium price, meaning the lowest price sellers can charge is above the equilibrium price

Quantity Regulation

A minimum or maximum quantity that can be sold

Mandate

A requirement to buy or sell a minimum amount of a good

Quotas

A limit on the maximum quantity of a good that can be bought or sold

Positive Analysis

Describes what is happening, explains why, or predicts what will happen

Normative Analysis

Prescribes what should happen, which involves value judgements

Economic Efficiency

An outcome is more economically efficient if it yields more economic surplus

Economic Surplus

The total benefits minus total costs flowing from a decision; it measures how much a decision has improved your well-being

Efficient Outcome

Yields the largest possible economic surplus

Equity

A measure of fairness. An outcome yields greater equity if it results in a fairer distribution of economic benefits.

Consumer Surplus

The economic surplus you get from buying something (marginal benefit - price). Describes the gain from buying something at a price below the highest price you were willing to pay.

Producer Surplus

The economic surplus you get from selling something (price - marginal cost). Describes the gain from selling something at a price above the marginal cost you incur from producing that good or service.

Voluntary Exchange

Buyers and sellers exchange money for goods only if they both want to. Does not guarantee that buyers and sellers share equally in the gains from trade.

Efficient Production

Producing a given quantity of output at the lowest possible cost, which requires producing each good at the lowest marginal cost

Efficient Allocation

Allocating goods to create the largest economic surplus, which requires that each good goes to the person who will get the highest marginal benefit from it

Efficient Quantity

The quantity that produces the largest possible economic surplus

Rational Rule for Markets

Produce more of a good if its marginal benefit is greater than or equal to the marginal cost

Market Failure

When the forces of supply and demand lead to an inefficient outcome

Deadweight Loss

How far economic surplus falls below the efficient outcome (economic surplus at the efficient quantity - actual economic surplus)

Government Failure

When government policies lead to worse outcomes

Distributional Consequences

Who gets what