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Week 4 notes for Microeconomics

by: Iman Usmani

Week 4 notes for Microeconomics EC 201

Marketplace > North Carolina State University > Economcs > EC 201 > Week 4 notes for Microeconomics
Iman Usmani
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About this Document

Consumer and producer surplus
Bobby Puryear
Class Notes
Microeconomics, test, exam




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This 2 page Class Notes was uploaded by Iman Usmani on Sunday February 7, 2016. The Class Notes belongs to EC 201 at North Carolina State University taught by Bobby Puryear in Spring 2016. Since its upload, it has received 18 views. For similar materials see Microeconomics in Economcs at North Carolina State University.


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Date Created: 02/07/16
EC 201 notes Chapter 4: Economic efficiency, government price setting and taxes  Price ceiling - a legally determined maximum price that sellers may charge  Price floor – a legally determined minimum price that sellers may receive  Consumer surplus – the difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays o Marginal benefit – the additional benefit to a consumer from consuming more unit of a good or service o The total amount of consumer surplus in a market is equal to the area below the demand curve and above market price  Producer surplus – the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives o Marginal cost – the additional cost to a firm of producing one more unit of a good or service o The total amount of producer surplus is equal to the area above the market supply curve and below the market price  Equilibrium in a competitive market results in the economically efficient level of output, where marginal benefit equals the marginal cost o Equilibrium in a competitive market results in the greatest amount of economic surplus, or total net benefit to society, from the production of the good or service o 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  Deadweight loss – the reduction in economic surplus resulting from a market not being in competitive equilibrium o The difference between the consumer surplus and the producer surplus  The sum of the consumer surplus and the producer surplus are an indicator of how well the economy is doing  Producer surplus – everything that is above the supply curve until equilibrium price  Consumer surplus – everything that is below the demand curve for the quantity that is bought and sold  An example of a price floor is minimum wage, since it is the legal minimum salary a person can earn. If the minimum wage is increased, there would be a change in equilibrium thus lowering the supply of jobs.  When the government imposes price floors or price ceilings, three things occur: o Some people win. o Some people lose. o There is loss in economic efficiency.  Black market – a market in which buying and selling takes the place at prices that violate government prices regulations o When the market is constrained, what would people be willing to pay?  The ramifications for rent ceilings o Deterioration of housing quality o Picky or discriminatory landlords o Black market  Tax incidence – the actual division of the burden of a tax between buyers and the sellers in the market o The incidence of tax is determined by the relative slopes of the demand and supply curves


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