Market Power- In some markets, a single buyer or seller may be able to control the market prices. Market Power can cause inefficiency because it keeps the price and quantity away from the equilibrium of supply and demand.
Externalities- The impact of one person’s actions on the well-being of a bystander. Since buyers and sellers do not consider these side effects when deciding how much to consume and produce, the equilibrium in a market can be inefficient from the standpoint of society as a whole.
2. What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus …show more content…
6. Why do economists use real GDP rather than nominal GDP to gauge economic well-being? Define the GDP deflator.
Nominal GDP- The production of goods and services valued at current prices
Real GDP- The production of goods and services valued at constant prices.
The goal in obtaining GDP is to gauge how well the overall economy is performing. Because real GDP measures the economies production of goods and services, it reflects the economy’s ability to satisfy the needs and desires of its citizens. Therefore, real GDP is a better gauge of economic well-being than is nominal