ECON- Microeconomics Exam 2

marginal benefit received by consumers

marginal cost of production

the additional benefit to a consumer from consuming one more unit of a good/service

the additional cost to produce one more unit. (mc increases as more of the good is produced.)

measures the net benefit to consumers from participating in the market rather than the total benefit

the net benefit to producers receive from the market

...

The amount a consumer is willing to pay and the amount a producer is willing to sell/accept

Price= 0 the consumer surplus is all area under demand curve
Price doesn't equal 0, CS is area below the demand curve and above the market price.
CS= TB - Price of good/service

Cost=0, PS is all the area below the market price
Cost doesn't equal 0, producer surplus is area below market price and above supply curve
PS= T$Amount received from consumers- cost to produce good.

the reduction in economic surplus resulting from a market not being in competitive equilibrium.
(WHEN THE MARKET IS NOT EQUILIBRIUM...THERE IS DEADWEIGHT LOSS)

consumers get governments to determine a maximum price sellers can charge. ex. rent control

Firms get government to determine a minimum price that sellers may receive. ex farm product like milk, the gov has been setting price floors above the equilibrium since the 30s.

On bottom...excess demand...more demanded than supplied...producer will raise prices and this will decrease demand...equilibrium will then be reached.

on top...happens when there is too much supply...so producers lower prices so demand will raise, bringing it back to equilibrium.

reduce economic efficiency

pos externality means too little of the good or service will be produce at market equilibrium.

if there are externalities, market equilibrium will not be efficient.
will be deadweights and overproduc for neg and underproduct for pos
this is an example of market failure

a situation in which the market fails to produce the efficient levels of output

greater likely to be the size of the deadweight loss-the extent of the market failure.

a cost of benefit that affects a party that didn't want choose to have them.
cause market inefficiency because buyers and sellers neglect external effects of their actions when deciding on how much to demand or supply.

if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.

the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it.
BETTER PROPERTY RIGHTS, BETTER DEALING W/ EXTERNALITIES.

important in shaping long uneconomic growth,which eventually yield higher living standards.
!Property rights avoid the market failure!

taxes on goods/services effect market equilibrium for the good/service
tax is a decline in economic efficency

-consumer and producer surplus
-there is deadweight loss
-economic efficiency declines

the actual division of the burden of a tax between buyers and sellers in a market

neg externalities caused too much to be produces
-taxes reduce the amount of output

a amount paid to producers or consumers to encourage the production or consumption of a good.

these are popular because they increase efficiency while bringing in revenue. this allows inefficiency causing taxes to be reduces.

emission permits are distributed...firms can trade permits
market is used to achieve efficient pollution reduction.

is the total satisfaction received from consuming a given total quantity of a good or service

the satisfaction gained from consuming another quantity of a good or service.
The change in total utility a person receives from consuming one additional unit of a good/service.

if the impact of the externality is beneficial
ex. flu shot=herd immunity
PE= SB>PB
TOO LESS OF IT IS PRODUCED AT EQUILIBRIUM

if the impact of on the person concerned is negative
ex. pollution
social cost= cost of pollution
neg ex SC>PS
TOO MUCH IS PRODUCED AT EQUILIBRIUM

the enjoyment of satisfaction an individual gets from consuming a good/service

MUx / Px= MUy / Ry

is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility. At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical.

third parties experience negative effects from an activity or transaction in which they did not choose to be involved. In order to compensate for negative externalities, the market as a whole is reducing its profits in order to repair the damage that was caused which decreases efficiency.

Tax: Inelastic supply and elastic demand. In a scenario with inelastic supply and elastic demand, the tax burden falls disproportionately on suppliers. The imposition of the tax causes the market price to increase from P without tax to P with tax and the quantity demanded to fall from Q without tax to Q with tax.

% change in quantity demanded is greater than the % change in price
pe is >1

% change in quantity demanded is less than the percentage change in price.
pe is <1

considering the supply and demand and their elasticities, the actual tax incidence, which is defined as the actual burden that each transaction participant shares, cannot be mandated by law, but depends on the respective elasticities of both supply and demand.