Key Concepts Essay Sample
Welfare Economics is an economic study or thought, which focuses on the distribution of goods and resources. A general equilibrium of desirability and efficiency should be achieved while allocating. It is very subjective study because it is hard to achieve such equilibrium.
Willingness to Pay is the highest limit of money amount an individual or group would pay for goods or services. Willingness to Pay depends on branding and personal evaluation of a product.
Consumer surplus describes a difference between willingness to pay and the actual payment a consumer pays for the good. It is a monetary gain and satisfaction got when a person can by a product cheaper than his/hers willingness to pay amount.
Cost refers to an amount of money needed to produce something. For example, the cost of shoes is the price for materials, equipment used and money paid to a worker to produce a particular kind of shoes.
Producer surplus. Producers benefit from selling when the market price is higher than the production costs. The difference between the market price and the production costs refers to the notion of producer surplus
Efficiency is a state in which a set of resources is allocated in a way to maximize the value and output, and minimize inefficiency and waste. Referring to a product, it means that is produced at the lowest possible costs.
Equality is the situation of parity, when two things are equal to each other. For example, when exchange rate is equal, it means that currencies are 1 to 1.
Deadweight loss occurs when demand and supply are not in the state of equilibrium. It the loss caused from the inefficiency when allocating the resources and market distortions such as taxes and government regulations. It refers to changes in consumer and producer surplus.
World price defines the international price of a product at the world market. The price excludes any trade taxes when a product enters a country but might include them when a product leaves a country.
Tariff can be described as a duty or tax set for a product of import by a government of any country the product was imported to. Tariffs are usually a percentage of the declared value.
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