econ ch 4
price floor
A legally determined minimum price that sellers may receive surplus protection to producers
total benefit of consumer
is equal to the area below demand curve
price ceilling
A legally determined maximum price that sellers may charge protection of consumers ex. apartment control shortage -create black maerket
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.
Non-binding price controls
Price floor set below equilibrium price. Price ceiling set above equilibrium price
to be binding
Price floor must be above equilibrium price. Price ceiling must be below equilibrium price.
tax incidence (tax burden)
The actual division of the burden of a tax between buyers and sellers in a market
Marginal Benefit
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal Cost
The additional cost to a firm of producing one more unit of a good or service.
Consumer surplus
The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays. The total amount of consumer surplus in a market is equal to the area above the market price and below the market demand curve.
Consumer surplus measures the net benefit to consumers.
Consumer surplus = total benefit minus the payment to producers
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. The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price. Total cost of production is equal to the area below supply curve. Producer surplus measures the net benefit to producers Producer surplus = Revenue -Total Cost
dead weight loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium.
economic surplus
The sum of consumer surplus and producer surplus.