Homework 3 ECO2023 Vocabulary

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$75.

________ refers to the reduction in economic surplus resulting from not being in competitive equilibrium.

Deadweight loss

________ is maximized in a competitive market when marginal benefit equals marginal cost.

Economic surplus

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market.

above; below

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

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

consumer surplus.

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

In a competitive market the demand curve shows the ________ received by consumers and the supply curve shows the ________.

marginal benefit; marginal cost

To affect the market outcome, a price ceiling

must be set below the equilibrium price.

In order to be binding, a price ceiling

must lie below the free market equilibrium price.

A ________ curve shows the marginal cost of producing one more unit of a good or service.

supply

The actual division of the burden of a tax between buyers and sellers in a market is called

tax incidence.

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service.

Economic efficiency in a competitive market is achieved when

the marginal benefit equals the marginal cost from the last unit sold.