Welfare and Market Efficiency

A set of flashcards based on the key concepts of welfare and market efficiency discussed in the lecture notes.

Welfare

How 'well off' agents in the economy are.

Normative Economics

The branch of economics that concerns with how something should/ought to be.

Positive Economics

The branch of economics that deals with how something actually is.

Competitive Equilibrium

An allocation and set of prices where all consumers maximize utility, all producers maximize profit, and markets clear.

Partial Equilibrium Analysis

Analyzes a subset of the market in isolation, usually focusing on just one good.

General Equilibrium Analysis

Looks at the entire market, for all goods, at once.

Consumer Surplus

The difference between the monetary value a consumer is willing to pay for a good and the price paid.

Producer Surplus

The difference between the monetary value a producer receives for its output and the lowest price they would accept.

Deadweight Loss

The difference in total welfare from the maximum total welfare and the actual total welfare of an allocation.

Total Welfare

The monetary value created by changing an allocation or trade.

assumptions we can make

• markets are complete

• no transactions costs and no externalties

• willingness to pay is equivalent to value

• every agent has the exact same marginal value for money

allocation

a distribution of goods across agents

marginal willingness to pay

how much an agetn is willing to pay for the next unit