Microeconomics (9th Edition) - Chapter 4: Economic Efficiency, Government Price Setting, and Taxes

Comprehensive vocabulary flashcards defining fundamental microeconomic concepts from Chapter 4, including surplus measures, efficiency, market interventions (price floors and ceilings), and tax incidence.

Consumer Surplus

The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays; it represents the net benefit received by consumers participating in a market.

Marginal Benefit

The additional benefit to a consumer resulting from consuming one more unit of a good or service.

Producer Surplus

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives; it represents the net benefit received by producers from participating in a market.

Marginal Cost

The change in a firm's total cost from producing one more unit of a good or service, which equals the lowest price a firm is willing to accept for that unit.

Economic Surplus

The sum of consumer surplus and producer surplus, which measures the total net benefit to consumers and firms in a market.

Economic Efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced equals its marginal cost of production and the sum of consumer surplus and producer surplus is maximized.

Deadweight Loss

The reduction in economic surplus that results from a market not being in competitive equilibrium, representing the inefficiency in the market.

Price Ceiling

A legally determined maximum price that sellers may charge for a good or service.

Price Floor

A legally determined minimum price that sellers may receive for a good or service.

Illegal Market

A market in which buying and selling take place at prices that violate government price regulations.

Natural Experiment

An observational study where a variable of interest changes for one group of subjects but not for another similar group, allowing economists to study policy outcomes such as minimum wage changes.

Per-Unit Tax

A tax assessed as a fixed dollar amount on each unit of a good or service sold, distinct from a percentage-based tax.

Excess Burden

The deadweight loss that results from the imposition of a tax in a market.

Efficient Tax

A tax that imposes a relatively small excess burden compared to the amount of tax revenue it generates.

Tax Incidence

The actual division of the burden of a tax between buyers and sellers in a market, determined by the relative slopes of the demand and supply curves rather than legal liability.

FICA Tax

The Federal Insurance Contributions Act tax, set at $15.3\%$ of wages to fund Social Security and Medicare, split evenly by law between employers ($7.65\%$) and workers ($7.65\%$).