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Welfare

QuestionAnswer
Welfare How markets function
Equity The fair distribution of wealth in a market
Efficiency The market functions fully on who has purchasing power
Consumer surplus The measure of economic surplus earned from buying a good or service
Consumer surplus equation for low numbers Sun of marginal benefit minus price
Producer surplus The measure of economic surplus earned from welling a good or service
Producer surplus equation for low numbers Sum of price minus marginal cost
Total surplus Consumer surplus plus producer surplus
Consumer surplus equation for high numbers Area above price and below demand curve
Producer surplus equation for high numbers Area below price and above supply curve
Dead weight loss (DWL) A loss in economic surplus
What does DWL depend on? Quantity
DWL equation Total surplus with DWL minus total surplus without DWL
What does dead weight loss have to include? Any values greater than Qe
Market failure Market forces lead to an inefficient outcome
5 reasons market failure happens Market power undermines competitive pressures, externalities, information problems, irrationality, governmental regulations impede market forces
Why can market power lead to market failure? Monopolies or other similar things can decrease competition and poorly effect markets
Why can externalities lead to market failure? Because externalities are not always taken into account, they can cause unexpected side effects
Why can information problems lead to market failure? When people don't have all the information they might lose trust in a product and choose not to buy
Why can irrationality lead to market failure? When people purchase things irrationally they might make bad decisions that affect that market
Why can governmental regulations lead to market failure? Too many, unnecessary, or poorly thought out governmental regulations can cause problems with natural market forces
Government failure When a governmental intervention in the market turns out to not be for the best
Why might governmental failure happen? Politicians make choices best for reelection rather than the best policy, well-meaning policies have unforeseen consequences
Created by: user-2052955
 

 



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