MicroEconomics Chapter 6
Total Surplus
=Economic Surplus=Consumer Surplus + Producer Surplus
Majority Rule
Allocates resources in the way that a majority of voters choose
Goal of Resource Allocation
Efficient use of resources-Full Employment and Full Production Maximize Net Benefits (NB=Total Benefit-Total Cost) Marginal Benefit=Marginal Cost (Change in Total Benefits) / ( Change in Allocation)= (Change in Total Cost) / (Change in Allocation)
Resource Allocation Methods
Market Price Command Contest First Come, First Served Sharing Equally Lottery Personal Characteristics Force
Consumer Surplus
The Marginal Benefit from a good or service is in excess of the price paid for it summed over the quantity consumed =Price consumers Willing to Pay - Actual Price
Producer Surplus
The price of a good in excess of the marginal cost of producing it, summed over the quantity produced =Actual Price- Price Producer is Willing to Accept
Market Failure
a situation in which the market delivers an inneficient outcome
Command System
allocates resources by the order of someone in authority
Contest
allocates resources to a winner
First-Come, First-Served
allocates resources to those who are first in line
Lottery
allocates resources to those who pick the winning number, draw the lucky cards, or come up lucky on some other gaming system.
Force
effective method for the state to transfer wealth from teh rich to the poor and the legal framework in which voluntary exchange in markets takes place.
Sharing Equally
everyone gets the same amount of a resouce
Personal Characteristics
resources are allocated on the basis of this, people with the "right" characteristics get the resources.
Deadweight Loss
the decrease in total surplus that results from an inneficient underproduction or overproduction
Marke Price:
the people who get the resouce are those who are willing and able to pay THIS