Module 11

True or False? At a price below equilibrium, the market is more efficient than it is at the equilibrium price.

False

True or False? The lowest price that a seller is willing to accept is called the seller's profit.

False → A seller's cost is the lowest price at which he or she is willing to sell a good.

________ are the rights of owners of valuable items to dispose of those items as they choose.

Property rights → What name is applied to the general category of items you own?

If the government were to intervene in the market by lowering the price below the equilibrium price of a good, which of these would NOT occur?

The outcome would be efficient.

Which of these is a key factor in the effectiveness of well-functioning markets?

The right to use and dispose of your private property as you see fit

Assuming that the supply curve of ice cream is upward sloping, which statement is true in the market for ice cream if there is a decrease in the demand for ice cream?

There is a decrease in producer surplus.

Which statement is true if there is a decrease in the demand for cupcakes?

There is a decrease in producer surplus.

If total surplus rises, which statement must have occurred?

There was an increase in demand or an increase in supply.

Total producer surplus for good X can be measured as:

Total producer surplus for good X can be measured as:

True or False? Prices are the economic signal that convey consumers' willingness to pay and sellers' costs.

True → Both producers and consumers make decisions based on prices.

True or False? Producer surplus is the net gain to an individual seller from selling a good.

True → Producer surplus is the net gain for a seller because it is the difference between his or her cost and the price received.

Producer surplus is represented by the area _____ the supply curve and _____ the price.

above; below

_________ is the difference between the buyer's willingness to pay and the price actually paid.

consumer surplus

Anna is willing to sell her 20-year-old boat, but not for less than $2,300. For Anna, the cost of selling this boat is _____ $2,300.

equal to

An efficient market ensures that:

every consumer who makes a purchase values the good more than every seller who makes a sale.

When there is a bountiful harvest of grapefruit, if the demand curve for grapefruit is downward sloping, total consumer surplus in the grapefruit market:

increase

In the market for corn, a primary input in the production of ethanol, total surplus _____ when the price of ethanol increases. Assume that the supply of corn is upward sloping.

increases

When there are some missed opportunities where some people could be made better off without making other people worse off, the market is _________.

inefficient → A market is inefficient if all of the opportunities to make people better off without making others worse off haven't been exploited.

When the market is inefficient, _________ occurs.

market failure → Market failure means that the market outcome is inefficient.

Market failure refers to a situation in which:

markets fail to reach an efficient outcome.

When a market is dominated by a monopolist, market failure will exist because:

one party can prevent mutually beneficial trades. → A monopolist causes market failure by preventing mutually beneficial trades in order to increase profits.

_______ is the difference between the market price and the seller's cost.

producer

Markets are usually efficient because of:

property rights and economic signals in the form of prices.

The total consumer surplus for good X can be calculated by all of these calculations EXCEPT:

the area bounded by the demand curve for X and the two axes

A consumer's willingness to pay for a good is a measure of:

the benefit that the consumer expects to receive from the good. → The consumer's willingness to pay is a measure of the benefit that he or she expects to receive from consuming the good.

Consumer surplus for an individual buyer is equal to:

the consumer's willingness to pay for the good minus the price of the good.

A consumer's willingness to pay depends on:

the cost of producing the good or service.

When the price of a product increases, the source of the increase in producer surplus is

the increase in surplus of the original sellers as well as the increase in surplus of the new sellers. → When the price increases, producer surplus increases because the individual surplus of the original sellers increases and more sellers are willing to sell at the higher price.

When there are externalities in a market, market failure exists because:

the market does not account for all of the side effects of the activity.

Maximum total surplus in the market for chocolate occurs when:

the market is in equilibrium.

The most Alex is willing to pay for the last ticket to the Billy Bragg concert is $15, whereas Jake is willing to pay up to $25. Alex is first in line and buys a ticket for $15. He then resells his ticket to Jake for $20. By reselling the ticket instead of going to the concert himself, Alex caused:

the sum of the consumer and producer surplus to increase.

Peanut butter is an inferior good. If there is an increase in income and the supply of peanut butter is upward sloping, total surplus in the peanut butter market:

will decrease.

A consumer's ___________ for a good is the maximum price at which he or she would buy that good.

willingness to pay → The maximum price that a consumer is willing to pay for a good represents his or her willingness to pay.