Economics 3 (Ch7)
A seller's opportunity cost measures the
value of everything she must give up to produce a good.
One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
welfare economics.
Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
willingness to pay.
Welfare economics is the study of how
the allocation of resources affects economic well-being.
Economists typically measure efficiency using
total surplus.
Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His consumer surplus is
$15.
Inefficiency can be caused in a market by the presence of
*imperfectly competitive markets. *externalities. *market power. *All of the above are correct.
Which of the following will cause a decrease in producer surplus?
income increases and buyers consider the good to be inferior
All else equal, a decrease in demand will cause an increase in producer surplus.
False
Markets will always allocate resources efficiently.
False
Which of the following events would increase producer surplus?
Sellers' costs stay the same and the price of the good increases.
All else equal, an increase in supply will cause an increase in consumer surplus.
True
Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it.
True
Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.
True
For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.
True
Producer surplus is the amount a seller is paid minus the cost of production.
True
Producer surplus measures the benefit to sellers from receiving a price above their costs.
True
Producer surplus is the
amount a seller is paid minus the cost of production.
Inefficiency exists in an economy when a good is
not being produced by the lowest-cost producers.
The "invisible hand" refers to
the marketplace guiding the self-interests of market participants into promoting general economic well-being.
Total surplus is
equal to producer surplus plus consumer surplus.