Microeconomics Chapter 4

Economic efficiency is

-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.

Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____.

-Consumer; producer;​ maximum; equilibrium

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 below the demand curve and above the market price.

Producer Surplus

-The difference between the lowest price a firm would be willing to accept 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.

A black market is

A market in which buying and selling take place at prices that violate government price regulations

Economic​ surplus, or the total net benefit to​ society, is ___________ at competitive equilibrium.

Greatest

A price ceiling is a legally determined ______________ price that sellers may charge. A price floor is a legally determined ____________ price that sellers may receive.

Maximum, minimum

Consumer and producer surplus measure the​ _____ benefit rather than the​ _____ benefit.

Net, total

​"Rent controls, government farm​ programs, and other price ceilings and price floors are​ bad." This is an example of a

Normative statement

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.

Equilibrium in a competitive market results in ___________

The economically efficient level of​ output, where marginal benefit equals marginal cost.

Deadweight 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

When the government imposes price floors or price​ ceilings,

some people​ win, some people​ lose, and there is a loss of economic efficiency.

Tax incidence is

the actual division of the burden of a tax between buyers and sellers in a market.