Market Efficiency

Suppose the government imposes a tax on suppliers of plastic drink cups equal to $1 per 100 cups. Before the tax, 10,000 cups were sold. After the tax, 8,000 cups were sold. The tax revenue is equal to $ ____________________

$80 (8,000/100)*$1

All else held constant, at higher prices, producer surplus increases for two reasons:

- the higher price may now make it possible for more firms to sell the product- everyone who was already going to sell the product gets a higher price, so they get more producer surplus than before.

all else held constant, at lower prices, consumer surplus increase for 2 reasons:

1. everyone who was already going to buy the product gets a break on the price, so they get more consumer surplus than before 2. lower prices may now make it possible for more people to buy the product

producing the goods and services that consumers most want in such a way that the marginal benefit equals the marginal cost is:

Allocative efficiency

______________ surplus can be thought of as the wealth that trade creates for consumers in a market.

Consumer

Producer surplus is the:

Difference between the price producers receive for a good or service and the minimum price they are willing and able to accept.

Deadweight loss is the value of the ________________ surplus that is forgone when a market is not allowed to adjust its competitive equilibrium.

Economic

If an economy is getting as much output as possible from its resources, it must be:

Producing them at the lowest possible cost.

if an economy is producing on the production possibilities frontier, the economy is:

Productively efficient

When calculating producer surplus for the market:

calculate the area above the supply curve and below the equilibrium price, from zero to quantity traded

Economic surplus is maximized when markets are in _________________.

equilibrium

When there is productive efficiency:

output is produced at the lowest possible total cost per unit of production output is produced using the fewest resources possible to produce a good or a service

A tax on suppliers shifts the:

supply curve up vertically

The revenue collected from a tax equals:

the tax times the quantity traded

deadweight loss is the:

the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

Producer surplus can be thought of as the ___________________ that trade creates for producers in a market.

wealth

economics is a branch of economics that focuses on measuring the well-being market participants and how changes in a market affect their well-being.

welfare

Graphically, consumer surplus is the area below the demand curve and above the equilibrium price, from _________________ to the quantity traded.

zero