Microeconomics: Economic Efficiency, Government Price Setting, and Taxes

These flashcards cover key vocabulary from the Microeconomics Chapter 4 lecture notes on economic efficiency, government price setting, and taxes.

Surplus

Something that remains above what is used or needed, referring to the benefit people derive from engaging in market transactions.

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.

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.

Marginal benefit

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

Marginal cost

The change in a firm’s total cost from producing one more unit of a good or service.

Economic surplus

The sum of consumer surplus and producer surplus, representing the total net benefit to consumers and firms.

Economic efficiency

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

Deadweight loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium, indicating the amount of inefficiency in a market.

Price ceiling

A legally determined maximum price that sellers may charge.

Price floor

A legally determined minimum price that sellers may receive.

Illegal market

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

Normative question

A question that depends on values and judgments, without a single right or wrong answer.

Per-unit taxes

Taxes assessed as a particular dollar amount on the sale of a good or service, as opposed to a percentage tax.

Excess burden

The deadweight loss from a tax.

Efficient tax

A tax that imposes a small excess burden relative to the tax revenue it raises.

Tax incidence

The actual division of the burden of a tax between buyers and sellers in a market.