Economics: Ch.7&10
highest-value buyers are making a purchase and the lowest-cost sellers are selling, buyers and sellers as distinct groups are doing as well as they possibly can and competitive market is in equilibrium
Social surplus is maximized when the ___________.
sum of consumer surplus and producer surplus
Social surplus is the ____________.
Average tax rate
faced by a household is given by total taxes paid divided by total income
Proportional tax system
households pay the same percentage of their incomes in taxes regardless of their income level
Pareto efficient
if no individual can be made better off without making someone else worse off
Progressive tax system
involves higher tax rates on those earning higher incomes
Regressive tax system
involves lower tax rates on those earning higher incomes
Price ceiling
is a cap or maximum price of a market good
Price control
is a government restriction on the price of a good or service
Price floor
is a lower limit on the price of a market good
Equilibrium Price
is determined by the intersection of the market demand and market supply curves
Competitive market equilibrium
is efficient in the sense that all mutually advantageous trades take place: no more, no less
Deadweight loss
is the decrease in social surplus from a market distortion
Consumer Surplus
is the difference between the buyers' reservation values and what the buyers actually pay
Producer Surplus
is the difference between the price and the sellers' reservation value
Gross domestic product
is the market value of final goods and services produced in a country in a given period of time
Reservation Value
is the price at which a trading partner is indifferent between making the trade and not doing so
Social Surplus
is the sum of consumer surplus and producer surplus
Raising revenue
national defense, public education, police protection and infrastructure projects
Transfer payments
occur when the government gives part of its tax revenue to some individual or group
Coordination problem
of bringing the agents together to trade arises
Regulation
refers to actions by the federal or local government directed at influencing market outcomes
Direct Regulation
refers to direct actions by the government to control the amount of a certain activity
Marginal tax rate
refers to how much of the last dollar earned is paid out in tax
Tax incidence
refers to how the burden of taxation is distributed
Financing operations
the salaries of presidents, congressmen and other politicians and for the sizable bureaucracy in charge of the day-to-day running of government operations and services
Pareto efficient
Besides maximizing social surplus, the competitive market equilibrium is also...
Social surplus is maximized
An important outcome from buyers and sellers optimizing in perfectly competitive markets is that...
1. Raising revenue 2. Transfer payments 3. Financing operations 4. Correcting market failures and externalities
Four main factors underlying government taxation and spending decisions:
any departure from the equilibrium necessarily reduces social surplus, price efficiently allocates goods and services to buyers and sellers and no individual can be made better off without making someone else worse off
In assessing the performance of a perfectly competitive market, we can say that ____________.
consumers are infinitely price sensitive
The incidence of the tax falls entirely on producers because ____________.
reservation price and willingness-to-paypay value
The price at which a buyerbuyer is indifferent between making a purchasepurchase and not doing so is known as herher ____________.
Incentive problem
When the optimizing actions of two economic agents are not aligned, these agents face an...
Market price
act as the most important piece of information, leading the high-value buyers to buy and the low-cost sellers to sell
The flow of labor and physical capital
causes the production to be at just the right level in a competitive market equilibrium
