Econ 102 Final Study Guide
Chapter 4:
Consumer surplus: the difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve
· the difference between the maximum amount the buyer was willing to pay and the actual price paid
Producer surplus: the difference between market price and the price at which firms are willing to supply the product. It is equal to the area below market price and above the supply curve
· the difference between he actual price and the minimum amount the seller was willing to accept you can calculate total surpluses by computing the area of the shaded total surplus: the sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market deadweight loss: the reduction in total surplus that results from the inefficiency of a market not in equilibrium
· both buyers and sellers would have benefitted from these transactions but they did not happen laissez faire: a market that is allowed to function without any government intervention price ceiling: a government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages price floors: a government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium. Leads to surpluses misallocation of resources: occurs when a good or service is not consumed by the person who values it the most, and typically results when a price ceiling creates an artificial shortage in the market
Chapter 5:
· Elasticity: the responsiveness of one variable to changes in another. Ex: if the price of gas changes how does the sale of large cars change?
· Knowing a product’s price elasticity allows economists to predict the amount by which quantity demanded will drop in response to a price increase and vice versa.
Elasticity of Demand
·
Consumer surplus: the difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve
· the difference between the maximum amount the buyer was willing to pay and the actual price paid
Producer surplus: the difference between market price and the price at which firms are willing to supply the product. It is equal to the area below market price and above the supply curve
· the difference between he actual price and the minimum amount the seller was willing to accept you can calculate total surpluses by computing the area of the shaded total surplus: the sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market deadweight loss: the reduction in total surplus that results from the inefficiency of a market not in equilibrium
· both buyers and sellers would have benefitted from these transactions but they did not happen laissez faire: a market that is allowed to function without any government intervention price ceiling: a government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages price floors: a government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium. Leads to surpluses misallocation of resources: occurs when a good or service is not consumed by the person who values it the most, and typically results when a price ceiling creates an artificial shortage in the market
Chapter 5:
· Elasticity: the responsiveness of one variable to changes in another. Ex: if the price of gas changes how does the sale of large cars change?
· Knowing a product’s price elasticity allows economists to predict the amount by which quantity demanded will drop in response to a price increase and vice versa.
Elasticity of Demand
·