Midterm 2 - Midterm 2 Econ 002 Chap. 4(end)-9 Opportunity...

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Midterm 2 Econ 002 Chap. 4(end)-9 Opportunity Cost – highest valued alternative given up to engage in an activity Chapter 4 (end) Demand based on willingness to pay Supply based on marginal cost Consumer Surplus the difference between the highest price a consumer is willing to pay and the price the consumer actually pays Producer Surplus – the difference between the lowest price a firm would have been willing to accept and the price it actually receives Economic Surplus: the sum of CS and PS Economic Efficiency – a market outcome in which the marginal benefit to consumers of the last unit of product is equal to its marginal cost of production, and in which the sum of the CS and PS is at a maximum Price Ceiling – a legally determined maximum price the sellers may change Price Floor a legally determined minimum price the sellers may receive P DWL S Cs Price Floor Pe e D Ps Qd Qe Qs Q Surplus P DWL S Cs Pe e Price Ceiling D Ps Qs Qe Qd Q Shortage Tax Incidence – the actual division of the burden of a tax between buyers and sellers in a market, Who has to “pay” - Legal Incidence – who initially pays it - Economic Incidence – who bears the burden of the tax Deadweight Loss of Taxation – the reduction in economic surplus resulting from a market not being in a competitive equilibrium
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Chapter 5 Externalities – a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service (to sell something to gain) - Positive - Negative Private Cost – the cost borne by the producer of a good or service Social Cost – the total cost of producing a good, including both the private cost and any external cost Benefit MC MB social MB private Qe Qs Q Private Benefit – the benefit received by the consumer of a good or service Social Benefit – the total benefit received from consuming a good, including both the
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Midterm 2 - Midterm 2 Econ 002 Chap. 4(end)-9 Opportunity...

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