question
Consumer Surplus
answer
The amount a buyer is willing to pay for a good minus the amounthe buyer actually pays for it (Ex. Willing to pay $500 but only pays $400 so has $100 Surplus)
*The area below the demand curve and above the price.
A lower price increase consumer surplus
*The area below the demand curve and above the price.
A lower price increase consumer surplus
question
Who receives consumer surplus?
answer
The buyer
question
Producer Surplus
answer
The amount a seller is paid for a good minus the sellers cost of providing it.
*The area below the price & above the supply curve measures the producers surplus
Increase in Price will increase producer surplus
*The area below the price & above the supply curve measures the producers surplus
Increase in Price will increase producer surplus
question
Who receives producer surplus?
answer
The seller
question
Formula for Total Surplus
answer
Total Surplus = Value to buyers - Cost to Seller
Or
Consumer surplus + Producer surplus
Or
Consumer surplus + Producer surplus
question
In what ways might government or policy makers make use of surplus measures?
answer
Use policy to increase total surplus
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Microeconomics
answer
The study of how households and firms make decisions and how they interact in markets
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Macroeconomics
answer
The study of economy-wide phenomena, including inflation, unemployment, and economic growth.
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Why must income equal expenditure in an economy as a whole?
answer
Because every transaction has a buyer and seller.
question
Gross Domestic Product (GDP)
answer
The market value of all final goods and services produced within a country in a given period of time. It is the sum of Expenditures + Income (wages, rent, interest, profit)
They measure the Flow of Money and the economic well being of a country.(Higher is better)
Consumption + Investment + Government + Net Exports
They measure the Flow of Money and the economic well being of a country.(Higher is better)
Consumption + Investment + Government + Net Exports
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Consumption
answer
Spending by household on goods (automobile, appliances, food and clothes) and services (intangible items-haircuts and medical care) with the exception of new housing.
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Investment
answer
Spending on capital inventories and structures, including household purchases of new housing. (It is the sum of purchases of capital equipment inventory and structures)
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Government Purchases
answer
Spending on goods and services by local, state and federal governments (Ex. Government workers salary and expenditures on public works)
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Net Exports
answer
Exports - Imports
-Spending on domestically produced goods by foreigners (exports) minus spend on foreign goods by domestic residents (imports)
-Spending on domestically produced goods by foreigners (exports) minus spend on foreign goods by domestic residents (imports)
question
Why are transfer payments such as social security not counted in government expenditures?
answer
These transfers are called Transfer Payments because they are not made in exchange for a currently produced good or service. They alter household income but do not reflect on the economy productions.
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Nominal GDP
answer
Uses current prices to place a value on the economy's production of goods and services
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Real GDP
answer
Uses constant base-year prices to place a value on the economy's production of goods and services
question
Why do we measure GDP in Real terms?
answer
because real GDP is not affected by changes in prices, changes in real GDP reflect only changes in the amount being produced. Thus real GDP is a measure of the economy's productions of goods and services.
When there is no inflation, the 2 interest rates are the same.
When there is no inflation, the 2 interest rates are the same.
question
Total Surplus
answer
The sum of Consumer Surplus & Producer Surplus
question
GPD Excludes Non product Transactions
answer
1-Financial Transactions-
A- Public transfer payments (Medicaid, Medicare, Welfare & Food Stamps)
B-Private Transfer Payments (gift cards, gift cash and Christmas gifts)
2-Stock & Bonds market transaction- selling & purchasing(paper asset transfer, doesn't creat any new product)
3-Second-Hand Sales- buying or selling used things is a transfer in ownership and is counted the 1st time, not counting multiple times.
A- Public transfer payments (Medicaid, Medicare, Welfare & Food Stamps)
B-Private Transfer Payments (gift cards, gift cash and Christmas gifts)
2-Stock & Bonds market transaction- selling & purchasing(paper asset transfer, doesn't creat any new product)
3-Second-Hand Sales- buying or selling used things is a transfer in ownership and is counted the 1st time, not counting multiple times.
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