ECO101H1 Chapter Notes - Chapter 7, 21: Economic Surplus, Demand Curve, Externality

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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. Cost the value of everything a seller must give up to produce a good. Producer surplus the amount a seller is paid for a good minus the seller"s cost. Efficiency the property of a resource allocation of maximizing the total surplus received by all members of society. Equity the fairness of the distribution of wellbeing among the members of society. Benefits buyers receive from participating in the market. Each buyer"s maximum price they would pay is called their willingness to pay and it measures how much that buyer values the good. Each buyer would purchase a good if the price is below their willingness to pay and would not purchase a good if the price is above.

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20. Producer surplus for an individual seller is equal to: A) the price of the good minus the marginal cost of producing the good. B) the marginal cost of the good minus the willingness to pay for the good. C) the willingness to pay for the good minus the price of the good. D) the marginal cost of the good minus the price of the good.

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).

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ECO101H1 Chapter Notes - Chapter 7, 21: Economic Surplus, Demand Curve, Externality

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