Term
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Definition
*measure of the net benefits consumers receive in the market.
*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.
(WTP − P = $20,000 − $17,200 = $2,800) |
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Term
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Definition
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.
(P − WTS = $17,200 − $15,000 = $2,200).
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Term
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Definition
| The sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market. |
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Term
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Definition
| The reduction in total surplus that results from the inefficiency of a market not in equilibrium. |
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Term
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Definition
| Occurs when a free market does not lead to a socially desirable outcome. |
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Term
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Definition
| Occurs when one party to a transaction has significantly better information than another party. |
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Term
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Definition
| A market that is allowed to function without any government intervention. |
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Term
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Definition
| 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. |
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Term
| misallocation of resources |
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Definition
| 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. |
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Term
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Definition
| A government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surpluses. |
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Term
| Reasons for market failure |
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Definition
Lack of competition
Existence of external benefits or costs
A mismatch of information
Existence of public goods |
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