ECO 100 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve, Opportunity Cost

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magentaclam155

2 Nov 2016

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Welfare economics: studies how the allocation of resources affects economic well-being. Willingness to pay (wtp: the maximum amount the buyer will pay for that good, wtp and the demand curve, at any q, the height of the d curve is the wtp of the marginal buyer. Consumer surplus (cs: the amount a buyer is willing to pay minus the amount the buyer actually pays. Cs= wtp-p: measure of a (cid:271)uyer"s (cid:271)e(cid:374)efit fro(cid:373) parti(cid:272)ipati(cid:374)g i(cid:374) a (cid:373)arket, differe(cid:374)(cid:272)e (cid:271)et(cid:449)ee(cid:374) a (cid:271)uyer"s (cid:449)illi(cid:374)g(cid:374)ess to pay a(cid:374)d the a(cid:272)tual pri(cid:272)e, area under the demand curve and above the price. Iv: area of triangle: x base x height. How a higher price reduces cs: fall in consumer surplus can be due to, buyers leaving market, remaining buyers paying higher price.

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.

chocolateantelope690

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

ECO 100 Lecture Notes - Lecture 7: Economic Surplus, Demand Curve, Opportunity Cost

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