Micro multiple choice

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Producer surplus is the area

Above the supply curve and below the price

If a market generates a side affect or externality, then a free market solutions

Are inefficient

Consumer surplus is the area

Below the demand curve and above the price

Medical care clearly and enhances peoples lives. Therefore, we should consume medical care until

Buyers receive no benefit from another unit of medical care

And inferior good is one for which an increase in income causes a

Decrease in demand

An increase in the price of a good along a stationary demand curve

Decreases consumer surplus

The law of demand states that an increase in the price of a good

Decreases the quantity demanded for that good

Adam Smith's invisible hand concept suggest that a competitive market outcome

Maximizes total surplus

If a benevolence social planner chooses to produce more than the equilibrium quantity of a good then

The cost of production on the last unit produced exceeds the value placed on it by buyers

In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should

allow the market to seek equilibrium on its own

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is

an inferior good

If a producer has market power (can influence the price of the product in the market) then free market solutions

are inefficient

Total surplus is the area

below the demand curve and above the supply curve

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect

equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

If buyers are rational and there is no market failure,

free market solutions are efficient and free market solutions maximize total surplus

An increase in the price of a good along a stationary supply curve

increases producer surplus

The law of supply states that an increase in the price of a good

increases the quantity supplied of that good

A perfectly competitive market has

many buyers and sellers

Buyers willingness to pay is that buyers

maximum amount they are willing to pay for a good

A monopolistic market has

only one seller

If an increase in the price of blue jeans leads to an increase in demand for tennis shoes, then blue jeans and tennis shoes are

substitutes

If a market is efficient, then

the market allocates output to the buyers who value it the most; market allocates buyers to the sellers who can produce the good at the least cost; the quantity produced in the market maximizes the sum of consumer and producer surplus

The sellers cost of production is

the minimum amount the seller is willing to accept for a good

If the price of a good is equal to the equilibrium price

the quantity demanded is equal to the quantity supplied and the price remains unchanged

If a benevolent social planner chooses to produce less than the equilibrium quantity of a good then

the value placed on the last unit of production by buyers exceeds the cost of production

If a price of a good is below the equilibrium price,

there is a shortage and the price will rise.

If the price of a good is above the equilibrium price,

there is a surplus and the price will fall.


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