Chapter 4

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Price ceiling

price ceiling is the maximum price a seller is allowed to charge for a product or service Read more: Price Ceiling Definition | Investopedia http://www.investopedia.com/terms/p/price-ceiling.asp#ixzz41hNBZY6S Follow us: Investopedia on Facebook

How does producer surplus change as the equilibrium price of a good rises or falls ?

As the price of a good rises, producer surplus increases , and as the price of a good falls , producer surplus increases .

Economic efficiency

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

Consumer Surplus

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays

Producer surplus

The difference between the lowest price a firm would be willing to accept and the price it actually receives

Economic surplus is maximized when

The marginal benefit of consumption is equal to the marginal costs of production.

Deadweight loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium

How does consumer surplus change as the equilibrium price of a good rises or falls ?

As the price of a good rises , consumer surplus decreases, and as the price of a good falls , consumer surplus increases .

Price floor

Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.


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