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5.9: Key Terms

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    108516

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    Welfare economics assesses how well the economy allocates its scarce resources in accordance with the goals of efficiency and equity.

    Efficiency addresses the question of how well the economy's resources are used and allocated.

    Equity deals with how society's goods and rewards are, and should be, distributed among its different members, and how the associated costs should be apportioned.

    Consumer surplus is the excess of consumer willingness to pay over the market price.

    Supplier or producer surplus is the excess of market price over the reservation price of the supplier.

    Efficient market: maximizes the sum of producer and consumer surpluses.

    Tax wedge is the difference between the consumer and producer prices.

    Revenue burden is the amount of tax revenue raised by a tax.

    Excess burden of a tax is the component of consumer and producer surpluses forming a net loss to the whole economy.

    Deadweight loss of a tax is the component of consumer and producer surpluses forming a net loss to the whole economy.

    Distortion in resource allocation means that production is not at an efficient output.

    Externality is a benefit or cost falling on people other than those involved in the activity's market. It can create a difference between private costs or values and social costs or values.

    Corrective tax seeks to direct the market towards a more efficient output.

    Greenhouse gases that accumulate excessively in the earth's atmosphere prevent heat from escaping and lead to global warming.

    Marginal damage curve reflects the cost to society of an additional unit of pollution.

    Marginal abatement curve reflects the cost to society of reducing the quantity of pollution by one unit.

    Tradable permits are a market-based system aimed at reducing GHGs.

    Carbon taxes are a market-based system aimed at reducing GHGs.

    This page titled 5.9: Key Terms is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.