Chapter 4

When the government imposes price floor or price ceilings

1) some people win 2) Some people lose 3)there is a loss of economic efficiency

Price ceiling

A legally determined maximum price that sellers may charge.

Price floor

A legally determined minimum price that sellers may receive. Next Question

solve for consumer surplus in competitive equilibrium use the equation given below.

Area of a triangle equals=one half × Base × Height

solve for consumer surplus under rent control use the equation given below

Consumer surplus under rent control = Consumer surplus under competitive equilibrium + Area D − Area C

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

Surplus

Something that remains above what is used or needed

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. The willingness to supply a product depends on the cost of producing it. Firms will supply an additional unit of a product only if they receive a price equal to the additional cost of producing that unit. The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price.

Consumer surplus

The difference between the highest price a consumer is willing to pay for a good or service and the actual price the customer receives We can use the demand curve to measure the total consumer surplus in a market. Demand curves show the willingness of consumers to purchase a product at different prices. Consumers are willing to purchase a product up to the point where the marginal benefit of consuming a product is equal to its price. 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 for a good or service and the price it actually receives.

A black market is

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

if price decrease

consumer surplus increase to the producer surplus and decreases in the deadweight

The gasoline tax​ is:

efficient in that the tax revenue is greater than the excess burden.

consumer surplus measure the _____ benefit to consumers from participating in a market rather than the ______ benefit

net total

Deadweight loss

net loss of total surplus results from action that alters market equilibrium. poor use of resources

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

demand curve shows

the marginal benefit received by​ consumers

supply curve shows

the marginal cost of production

Deadweight loss in competitive equilibrium

there are no deadweight loss

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.

Producer surplus in a market

is equal to the total amount firms receive from consumers minus the cost of producing the good. In a​ sense, then, consumer surplus and producer surplus measure the net benefit to consumers and producers from participating in a market rather than the total benefit.

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

normative statement. The statement is concerned with what should be.

Consumer surplus measures

the benefit to consumers from participating in a​ market, and producer surplus measures the benefit to producers from participating in a market. Consumer surplus in a market is equal to the total benefit received by consumers minus the total amount they must pay to buy the good.