ECON-101 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve, Externality

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goldscorpion22

2 Mar 2016

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Examine the link between buyers" willingness to pay for a good and the demand curve. Learn how to define and measure consumer surplus. Examine the link between sellers" cost of producing a good and the supply curve. Learn how to define and measure producer surplus. See that the equilibrium of supply and demand maximizes total surplus in a market. How allocation of limited resources benefits the well-being of participants/society. A buyer"s willingness to pay minus the amount the buyer actually pays. Willingness to pay (wtp): the maximum price that a consumer is willing to pay for a product/service. Formula: consumer surplus = willingness to pay amount actually paid. Using the demand curve to calculate c. s: the area above the price paid and below the demand curve. Why are we in the market place: c. s is the benefit enjoyed by consumers for participating in the market place.

Related Questions

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).

redelephant805

7) Indicate whether each of the following statements is true or false, and explain why.

A. Producer surplus tends to fall as the supply curve becomes more elastic.

B. Consumer surplus tends to rise as demand becomes more elastic.

C. The market demand curve indicates the minimum price buyers are willing to pay at each level of production.

D. The market supply curve indicates the minimum price required by sellers as a group to bring forth production.

E. Consumer surplus is the amount that consumers are willing to pay for a given good or service above and beyond the amount actually paid.

bronzeoyster264

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.

chocolateantelope690

ECON-101 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve, Externality

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