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Unformatted text preview: ECON 2000 Exam Two Study Guide Chapters 4, 5, and 6 CHAPTER FOUR Consumer Surplus: The difference between the highest price a consumer is willing to pay and the price the consumer actually pays. Marginal Benefit: The additional benefit to a consumer from consuming one more unit of a good or service. Marginal Cost: The additional cost to a firm of producing one more unit of a good or service. Producer Surplus: The difference between the lowest price a firm would be willing to accept and the price it actually receives. Economic Surplus: The sum of consumer surplus and producer surplus. 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. Black Market: A market in which buying and selling take place at prices that violate government price regulations. Tax Incidence: The actual division of the burden of a tax between buyers and sellers in a market.-Consumer surplus allows us to measure the benefit consumers receive in excess of the price they paid to purchase a product.-Consumer surplus measures the net benefit to consumers from participating in a market rather than the total benefit. The net benefit equals the total benefit received by consumers minus the total amount they must pay to buy the good.-Similarly, producer surplus measures the net benefit received by producers from participating in a market, or the total amount firms receive from consumers minus the cost of producing the good.-Price FLOOR = surplus.-Price CEILING = shortage.-When the government imposes price floors or price ceilings, three important results occur: some people win, some people lose, and there is a loss in economic efficiency.-Whether rent controls or federal farm programs are desirable or undesirable is a normative question (what ought to be.)-Whether the gains to the winners more than make up for the losses to the losers and for the decline in economic efficiency is a matter of judgment and not strictly an economic question. Quiz Questions 1. When a government imposes a price ceiling or a price floor, the amount of economic surplus in a market is what?...
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This note was uploaded on 02/24/2010 for the course ECON 31423534 taught by Professor Yingpan during the Fall '09 term at LSU.
- Fall '09