ECON (70-80 terms)

• Marginal buyer


  the buyer who would leave the marketfirst if the price were any higher.
• Cost


  the value of everything a seller must give up to produce a good
• Producer surplus


  the amount a seller is paid for a good minus the seller’s cost
• Consumer surplus formula


  Value to buyers - Amount paid by buyers.
• Producer surplus formula

  Amount received by sellers - Cost to sellers
• Total surplus


  Value to buyers -Amount paid by buyers Amount received by sellers- Cost to sellers
• Efficiency


  the property of a resource allocation of maximizing the total surplus received by all members of society
• Equity


  the fairness of the distribution of well-being among the members of society
• Consumer and producer in the market equilibrium

  Total surplus—the sum of consumer and producer surplus—is the area between the supply and demand curves up to the equilibrium quantity.
• The efficiency of the equilibrium quantity

  At quantities less than the equilibrium quantity, the value to buyers exceeds the cost to sellers. At quantities greater than the equilibrium quantity, the cost to sellers exceeds the value to buyers. Therefore, the market equilibrium maximizes the sum of producer and consumer surplus
• Laissez-faire


  “allow them to do.”
• Two assumptions about how market work

  First, our analysis assumed that markets are perfectly competitive. In the world, however, competition is sometimes far from perfect. Second, our analysis assumed that the outcome in a market matters only to the buyers and sellers in that market
• Market power


  a single buyer or seller (or a small group of them) may be able to control market prices
• Market failure


  the inability of some unregulated markets to allocate resources efficiently
• Externalities


  refers to the unintended side effects or consequences of an economic activity that affect parties not directly involved in the activity and are not reflected in the prices of goods or services exchanged in the market
• Market efficiency


  the effective allocation of resources and optimal production of products and services by markets