EC001 - Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Contains a list of concepts, vocabulary, and other such topics related to 'Chapter 4 Economics: Economic Efficiency, Government Price Setting, and Taxes

What is consumer surplus?

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay.

What is producer surplus?

Producer surplus is the difference between the amount producers are willing to accept for a good or service and the amount they actually receive.

How is economic efficiency defined in competitive markets?

Economic efficiency occurs when resources are allocated in a way that maximizes total surplus, which is the sum of consumer and producer surplus.

What is the deadweight loss associated with government price controls?

Deadweight loss is the loss of economic efficiency that occurs when equilibrium for a good or service is not achieved due to price controls such as price floors or ceilings.

What are the main consequences of price ceilings?

Price ceilings can lead to shortages, reduced quality of goods, and black markets.

What are price floors?

Price floors are minimum prices set by the government for certain goods, preventing prices from falling below a certain level.

What is efficiency in a competitive market context?

Efficiency in a competitive market context means resources are allocated in a way that maximizes total surplus without deadweight loss.

How does consumer behavior affect consumer surplus?

Consumer behavior affects consumer surplus by influencing the highest price consumers are willing to pay, which can change as preferences or income levels change.

What factors influence producer surplus?

Producer surplus is influenced by production costs, market prices, and the number of firms in the market.

What happens to consumer and producer surplus when a price ceiling is enacted?

When a price ceiling is enacted, consumer surplus may increase for those who can purchase the goods, but overall market efficiency decreases, leading to potential shortages.

What is a market equilibrium?

Market equilibrium is the point where the quantity demanded equals the quantity supplied, and both consumer and producer surplus are maximized.

What is the role of government in maintaining market efficiency?

The government's role in maintaining market efficiency includes enforcing laws to protect competition, providing public goods, and regulating monopolies.

What are taxes used for in an economy?

Taxes are used to fund government services, infrastructure, welfare programs, and to regulate economic behavior.

How does a tax on sellers affect the market?

A tax on sellers increases the cost of production, leading to a decrease in supply, a higher equilibrium price for consumers, and lower prices received by producers.

What is a public good?

A public good is a good that is non-excludable and non-rivalrous, meaning it can be consumed by many individuals simultaneously without diminishing its availability.

How does a tax impact the demand curve?

A tax on a good shifts the demand curve downward, as consumers face higher prices due to the tax burden.

What is an example of a price floor?

An example of a price floor is the minimum wage, which sets a lower limit on the price of labor.

How do taxes create a deadweight loss?

Taxes create a deadweight loss by reducing the quantity of goods traded in the market compared to the equilibrium quantity, leading to inefficiency.

What is the long-term effect of price floors on the market?

The long-term effect of price floors can lead to surpluses, as suppliers continue to produce more at artificially high prices, creating excess supply.

What can lead to an increase in consumer surplus in a market?

An increase in consumer surplus in a market can occur due to a decrease in prices, improved quality of goods, or an increase in income.

In what way does government intervention alter market outcomes?

Government intervention alters market outcomes by imposing price controls or taxes which can lead to inefficiencies and changes in the equilibrium price and quantity.

What is a quasi-public good?

A quasi-public good is a type of good that has some characteristics of a public good, such as being non-excludable, but can be limited in supply. Examples include parks and public education.

What is a private good?

A private good is a type of good that is both excludable and rival in consumption, meaning that individuals can be prevented from using it and one person's use of the good reduces its availability for others. Examples include food and clothing.

What are common resources?

Common resources are goods that are non-excludable but rival in consumption, meaning that individuals cannot be effectively excluded from using them, but one person's use diminishes the availability for others. Examples include fisheries and public pastures.