Ch4 Study Guide - 92 CHAPTER 4 Economic Efficiency Government Price Setting and Taxes Estimating the impact of cigarette taxes is more complicated than

Ch4 Study Guide - 92 CHAPTER 4 Economic Efficiency...

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92 CHAPTER 4 Economic Efficiency, Government Price Setting, and Taxes Economics in YOUR Life! asked if you are more likely to find an affordable apartment in the city with rent control? Although rent control can keep rents lower than they might otherwise be, it can also lead to a permanent shortage of apartments. You may have to search for a long time to find a suitable apartment, and landlords may even ask you to give them payments "under the table," which would make your actual rent higher than the controlled rent. Finding an apartment in a city without rent control should be much easier, although the rent may be higher. Black market. A market in which buying and selling take place at prices that violate government price regulations. Consumer surplus. The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. Deadweight loss. The reduction in economic surplus resulting from a market not being in competitive equilibrium. Economic efficiency. A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. Economic surplus. The sum of consumer surplus and producer surplus. Marginal benefit. The additional benefit to a consumer from consuming one more unit of a good or service.
CHAPTER 4 I Economic Efficiency, Government Price Setting, and Taxes 93 Marginal cost. The additional cost to a firm of producing one more unit of a good or service. Price ceiling. A legally determined maximum price that sellers may charge. Price floor. A legally determined minimum price that sellers may receive. Producer surplus. The difference between the lowest price a firm would be willing to accept and the price it actually receives. Tax incidence. The actual division of the burden of a tax between buyers and sellers in a market. Appendix Quantitative analysis supplements the use of demand and supply curves with equations. An example the demand and supply for apartments in New York City is Qs = - 450,000 + 1,300P QD = 3,000,000-l,OOOP ~and Qs are the quantity demanded and quantity supplied of apartments per month, respectively. The coefficient of P in the first equation equals the change in quantity supplied for a one dollar per month change in price. f...Qs = 1 300 M of

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