ECON 102, Chapter 7

Two economic reasons why a higher price reduces CS

1) Fall in CS due to leaving buyers 2) Fall in CS due to remaining buyers paying higher prices

Two reasons why a lower price decreases producer surplus

1) Fall in PS due to leaving sellers 2) Fall in PS due to remaining sellers' lost

Two reasons why a higher price increases producer increases

1) Increase in PS due to entering sellers 2) Increase in PS due to EXISTING sellers' gain

How price effects PS

If price decreases -> producer surplus decreases If price increases -> producer surplus increases

How price effects CS

If price increases -> consumer surplus decreases If price decreases -> consumer surplus increases

Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is

a. $150. b. $425. c. $500. d. $850. *c. $500

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

a. only existing sellers who now receive higher prices on the pizzas they were already selling. b. only new sellers who enter the market because of the higher prices. c. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices. d. Producer surplus does not increase; it decreases *c. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices

Consumer Surplus

the amount a buyer is willing to pay minus amount actually paid

Marginal Buyer

the buyer who would leave he market if P were any higher

Willingness to Pay

the maximum amount a buyer is willing to pay for a good