ECN 104 Lecture Notes - Lecture 4: Price Floor, Economic Surplus, Demand Curve

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pinksheep369

27 Feb 2016

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Demand curve: only a small number of consumers, this curve doesn"t look like the smooth demand curves. These demand curves are step-shaped, with alternating horizontal and vertical segments. Each horizontal segment each step corresponds to one potential buyer"s willingness to pay. Individual consumer surplus: the net gain to an individual buyer from the purchase of a good; equal to the difference between the buyer"s willingness to pay and the price paid. Total consumer surplus: the sum of the individual consumer surpluses of all the buyers of a good in a market. Consumer surplus a term often used to refer both to individual consumer surplus and to total consumer surplus. The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price. A fall in the price of a good increases consumer surplus through two channels:

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

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

We can measure the total consumer surplus for good x as:

A) The sum of the individual consumer surpluses for all buyers of X

B) The area above the demand curve for X and below the price for X

C) The area bounded by the demand curve for X and the two axes

D) The area above the supply curve for X

crimsontermite840

ECN 104 Lecture Notes - Lecture 4: Price Floor, Economic Surplus, Demand Curve

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