ECO 201 Lecture Notes - Lecture 10: Economic Surplus, Economic Equilibrium, Marginal Utility

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orchidpig108

23 Jul 2018

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Consumer surplus: the difference between what consumers are willing to pay for a good or service and the price they do pay (the equilibrium price)() On a graph : it is measured as the area below demand and above p* out to q* = margin cost. lowest price a seller is willing to accept. Producer surplus: the difference between the lowest price a seller willing to accept (measure by the height of the supply curve), and the price she/he actually receives (p*). On a graph, it is the area above the supply curve and below market price. In an efficient market, total surplus is maximized. A market is allocatively efficient of all units where (cid:373)b (cid:373)c are produced (marginal benefit) (marginal cost) No u(cid:374)its (cid:449)here (cid:373)c > mb are produced. All u(cid:374)its (cid:449)here (cid:373)b (cid:373)c are produ(cid:272)ed. At q*, mb = mc, q* is efficient: all u(cid:374)its (cid:449)here (cid:373)b (cid:373)c are produ(cid:272)ed, no u(cid:374)its (cid:449)here (cid:373)c (cid:373)b are produ(cid:272)ed.

Related Questions

1. Consumer surplus is equal to the difference between

a. the maximum price a buyer is willing to pay and the market price.

b. the minimum price a buyer is willing to pay and the market price.

c. the maximum price a setter is willing to accept and the market price.

d. the minimum price a seller is willing to accept and the market price.

2. Consumer surplus is shown graphically as the area

a. under the demand curve and above market price.

b. above the supply curve and above the market price.

c. above the supply curve and below the market price.

d. under the demand curve and below the market price.

brownantelope470

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

Suppose that the U.S. Department of Agriculture (USDA) administers the price floor for cheese, set at $0.17 per pound of cheese. (In real life the actual price floor was officially set at $16.10 per hundredweight of cheese. One hundredweight is 100 pounds.) At that price, according to data from the USDA, the quantity of cheese produced in 2009 by U.S. producers was 212.5 billion pounds, and the quantity demanded was 211 billion pounds. To support the price of cheese on the price floor, the USDA had to buy up to 1.5 billion pounds of cheese. The accompanying diagram shows the supply and demand curves illustrating the market for cheese.

A. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay is $0.20 for a pound of cheese whereas the market equilibrium price is $0.13 per pound. The graph also shows that the minimum price at which a few of the producers are willing to sell is $0.06 per pound. In the absence of a price floor, how much consumer surplus is created?

b. How much producer surplus?

c. What is the total surplus?

D. The maximum price that a few of the consumers are willing to pay is $0.20 per pound of cheese, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, consumers buy 211 billion pounds of cheese. How much consumer surplus is created now?

E. The minimum price at which a few of the producers are willing to sell a pound of cheese is $0.06, and the price floor is set at $0.17 per pound. With the price floor at $0.17 per pound of cheese, producers sell 212.5 billion pounds of cheese (some to consumers and some to the USDA). How much producer surplus is created now?

F. The surplus cheese USDA buys is the difference between the number of cheese producers sell (212.5 billions pounds of cheese) and the number of cheese consumers is willing to buy at the price floor (211 billions pounds of cheese). How much money does the USDA spend on buying up surplus cheese?

G. Taxes must be collected to pay for the purchases of surplus cheese by the USDA. As a result, the total surplus (producer plus consumer) is reduced by the amount the USDA spent on buying surplus cheese. Using your answers for parts d, e, and f, what is the total surplus when there is a price floor?

H. How does this compare to the total surplus without a price floor from part c?

amaranthimpala915

ECO 201 Lecture Notes - Lecture 10: Economic Surplus, Economic Equilibrium, Marginal Utility

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