Topic 5: Market Efficiency

Consumer surplus is the difference between the:

maximum price consumers are willing and able to pay for a good or a service and the price they actually pay.

Allocative and productive efficiency occur when the equilibrium _____ is such that the quantity demanded equals the quantity supplied.

price

A minimum legal price at which a good, a service, or a resource can be sold is a:

price floor

The difference between the price producers receive for a good or a service and the minimum price they are willing and able to accept is _____ surplus.

producer

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.

Economic surplus is also known as:

social welfare or total surplus.

_____ in the market occurs where the supply and demand curves intersect.

Equilibrium

Given the information in the table below, how much producer surplus is generated for Bangles when the market price is $100? Name; Marginal Cost ($) Randy's; $150 Dancer's; 125 Michael's; 100 Bob's; 75 Bangles; 50

$50

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

Allocative

Which of the following is true?

Allocative inefficiency means there is deadweight loss.

Suppose a tax of $4 per unit is placed on sellers, as shown below by Supply2. The tax revenue collected is $___.

The tax revenue is the tax ($4) times the number of unit traded (2) which equal $8. So, $4 x 2 = $8.

A tax:

increases the cost of goods produced and shifts the supply curve up.

In terms of the production possibilities curve, allocative efficiency means that at any point in time:

an ideal combination of production is based on consumer preferences.

Marginal _____ is measured by the demand curve.

benefit

When calculating producer surplus for the market:

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

The difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the _____ surplus.

consumer

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in the equilibrium is the:

deadweight loss

Graphically, consumer surplus is the area below the _____ curve and about the equilibrium price, from zero to the quantity traded.

demand

Producer surplus is the:

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

The value of the _____ surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the deadweight loss.

economic

Producing output at the lowest possible total cost of production per unit is productive _____.

efficiency

The production possibilities frontier (PPF) shows how much of two goods an economy can produce when it is suing all available resources as _____ as possible.

efficiently

All else held constant, at lower prices consumer surplus increases for two reasons:

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

Graphically, producer surplus is the area above the _____ curve and below the equilibrium price, from _____ to the quantity traded.

supply; zero

Gains from trade in the market are maximized when:

the equilibrium price is such that the quantity demanded equals the quantity supplied.

The quantity traded times the tax equals:

the tax revenue for a tax.

A branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being is known as:

welfare economics.