Questions and Answers
What is consumer surplus?
The difference between the maximum price consumers are willing to pay for a good or service and the price they actually pay.
What is welfare economics?
A branch of economics that focuses on measuring the welfare of market participants and how changes in the market affect their well-being.
What is producer surplus?
The difference between the price producers receive for a good or service and the minimum price they are willing to accept.
What is economic surplus?
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What is deadweight loss?
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What is productive efficiency?
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What is allocative efficiency?
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Study Notes
Consumer Surplus
- Represents the difference between the highest price consumers are willing to pay and the actual price paid.
- Measures the economic benefit or wealth created for consumers when purchasing goods or services.
- Graphically illustrated as the area below the demand curve and above the equilibrium price.
Welfare Economics
- A subfield of economics dedicated to evaluating and measuring the welfare of individuals in a market.
- Examines how market changes impact the well-being of participants.
Producer Surplus
- The difference between the price received by producers and the lowest price they are willing to accept.
- Indicates the economic benefit or wealth created for producers from market transactions.
- Visualized as the area below the equilibrium price and above the supply curve.
Economic Surplus
- Represents the total welfare in a market, combining both consumer and producer surplus.
- Provides a comprehensive measure of the wealth generated from trade, often referred to as social welfare.
Deadweight Loss
- Refers to the loss of economic efficiency when a market is prevented from reaching its competitive equilibrium.
- Indicates the value of economic surplus that is unrecoverable due to market distortions or inefficiencies.
Productive Efficiency
- Achieving the lowest possible average total cost of production.
- Involves utilizing minimal resources to produce goods or services effectively.
Allocative Efficiency
- Ensures production aligns with consumer demand, where marginal benefits equal marginal costs.
- Focuses on creating the right mix of goods and services that fulfill consumer preferences most efficiently.
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Explore key concepts related to market efficiency with these flashcards. Each card provides definitions and insights into terms such as consumer surplus, enhancing your understanding of economic principles. Perfect for students looking to grasp important economic terms.
