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