01
Front
What is a buyer’s willingness to pay?
Back
The highest price a buyer is willing to pay for a unit.
Free Online Flashcard Deck
4 Efficiency and Policy in Competitive Markets Free Online FlashCards
Study 4 Efficiency and Policy in Competitive Markets with 12 free online flashcards. Review key terms, definitions, and concepts with this interactive flashcard deck.
12 cards
02
Front
How is consumer surplus measured?
Back
Consumer surplus is willingness to pay minus the price actually paid.
03
Front
How is producer surplus measured?
Back
Producer surplus is the price received minus the seller’s cost.
04
Front
What makes up total surplus?
Back
Total surplus is consumer surplus plus producer surplus.
05
Front
When does a unit create gains from trade?
Back
For a unit, gains from trade equal the buyer’s value minus the seller’s cost. Trade is beneficial when the buyer’s value exceeds the cost.
06
Front
What condition expresses allocative efficiency in the basic competitive model?
Back
Allocative efficiency means producing the quantity where society’s marginal benefit equals its marginal cost; in the basic competitive model, this is expressed as P=MC.
07
Front
What does productive efficiency mean?
Back
Productive efficiency means producing a given output at the lowest possible cost.
08
Front
What is the long-run efficiency benchmark for competitive firms?
Back
In the long-run perfectly competitive benchmark, firms produce where P=MC= minimum average total cost.
09
Front
Does an efficient market outcome guarantee fairness?
Back
No. Efficiency concerns gains from trade, while equity concerns fairness. Since willingness to pay reflects ability to pay, an efficient outcome need not distribute goods or income equitably.
10
Front
How does a per-unit tax affect market prices and quantity?
Back
A per-unit tax creates a gap between the price buyers pay and the net price sellers receive, and the traded quantity usually falls.
11
Front
What is deadweight loss?
Back
Deadweight loss is the value of mutually beneficial trades that no longer occur because a market disruption reduces trade.
12
Front
What determines who bears more of a tax’s economic burden?
Back
The less responsive side generally bears more of the economic burden, regardless of which side is legally required to pay the tax.
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