Chapter 7
This can be defined through the expression: WTP-P
What is Consumer Surplus
This curve shows the relationship between the size of a tax and tax revenue.
What is the Laffer curve?
This law explains the downward slope of the demand curve.
Law of demand
The method you will all use to calculate price elasticity.
Midpoint method
These policies are introduced if lawmakers believe that the market price is unfair to buyers or sellers.
Price controls
This is the sum of all surpluses - any possible deadwieghts
What is Total Surplus?
Whatever must be given up to obtain some item.
Opportunity Cost
This means that if the price of chocolate goes up, I will buy less peanut butter.
Complementary goods
These goods have a negative income elasticity.
Inferior goods
A legal maximum on the price at which a good can be sold.
Price ceiling
Amount a seller is paid for a good minus the seller’s cost of providing it
What is Producer Surplus?
This principle states that each good should be produced by the individual that has the smaller opportunity cost of producing that good.
Principle of comparative advantage
Where quantity supplied = quantity demanded.
Equilibrium
The flatter the demand curve, the greater this is.
Price elasticity of demand
These are used to raise revenue and influence market outcomes.
Taxes