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.