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EC120 Chapter Notes - Chapter 7: Economic Surplus, Demand Curve

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graydonkey67
17 Apr 2016
School
WLU
Department
Economics
Course
EC120
Professor
Jason Dean

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EC120 Full Course Notes
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Document Summary

Chapter 7: consumers, producers, and the eiciency of. Welfare economics: the study of how the allocation of resources afects economic wellbeing. The equilibrium of supply and demand in a market maximizes the total beneits received by buyers and sellers! Willingness to pay: the maximum amount that a buyer will pay for a good. Consumer surplus: a buyer"s willingness to pay minus the amount the buyer actually pays. Example: being willing to pay for something in an auction but only paying because no one will bid higher than that you have received consumer surplus of ( beneit for participating in the auction) Other auction participants get no consumer surplus because they paid and got nothing. Marginal buyer buyer who would leave the market irst if the price was any higher. The area below the demand curve and above the price measures the consumer surplus in a market!

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Related Questions

Efficiency in a market is achieved when

a. social planner intervenes and sets the quantity of output after evaluating buyers willingness to pay and sellers' costs

b. the sum of producer surplus and consumer surplus is maximized

c. all firms are producing the good at the same low cost per unit.

d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

The total surplus in a market is equal to
 
a. amount received by sellers - costs of sellers.
 
b. willingness to pay - price.
 
c. consumer surplus + producer surplus.
 
d. value to buyers - amount paid by buyers.

True or False:

1. Consumer surplus is the buyer's willingness-to-pay minus the seller's opportunity cost of production.

2. If your willingness-to-pay for a hamburger is $3 and you paid $2, then your consumer surplus is $5.00

3. The opportunity cost of production for a seller includes the implicit cost of the seller's time.

4. The height of the supply curve at a selected quantity is the seller's opportunity cost of producing that marginal unit.

5. Total surplus (total well-being) is the seller's cost of production minus the buyer's willingness-to-pay.

6. The competitive market equilibrium outcome is efficient because it allocates the produced output to the buyers who place the highest value on the good

7. Producer surplus is the area above the supply curve and below the price.

8. The competitive market equilibrium outcome maximizes total surplus (total well-being)

9. Producing and consuming more of a good will always increase the total surplus(total well-being).