AGB 312

A low congestion good is a good which is:

Excludable and nonrival

List the five demand shifters

1. Demographic characteristics 2. Income 3. Consumer preferences 4. Prices of related goods 5. Buyer expectations

List the six supply shifters

1. Technology 2. Returns from alternative activities 3. Prices of the factors of production 4. Number of sellers 5. Natural events 6. Seller expectations

Rival good

A rival good is one in which only one consumer can use/consume the good at a time.

Within the characterization of property rights, exclusivity refers to:

All benefits and costs accrued as a result of owning and using the resources should accrue to the owner either directly or indirectly by sale to others.

Within the characterization of property rights, transferability refers to:

All property rights should be reassigned from one owner to another in a voluntary exchange.

Excludable good

An excludable good is one in which someone can be prevented (physically or institutionally) from using it.

If the value of marginal cost of producing broccoli is $5 (MC = $5), interpret this value.

If the firm produces one more unit of broccoli, it will cost $5 to produce that additional unit.

Within the characterization of property rights, enforceability refers to:

Property rights should be secure from involuntary seizure or encroachment by others.

A commons good is a good which is:

Rival and nonexcludable

If MB < MC then:

Society has wasted resources

If MB > MC then:

Society is not wasting resources but has not maximized the total net benefits.

The economic definition of property rights is:

The bundle of entitlements defining the owner's rights, privileges, and limitations for use of the resource.

On a market supply and demand graph, how do you identify the consumer surplus at a given quantity?

The consumer surplus is the area bounded by the demand curve, the market price, and the level of output (or consumption)

What does the demand (Marginal Benefit) curve represent in terms of consumer behavior?

The demand curve represents the marginal willingness to pay by consumers; it represents the maximum value that the consumer is willing to pay for a good (based on its perceived utility).

What does the gap between the market price and the demand (marginal benefit, marginal willingness to pay) curve represent?

The gap represents the consumer surplus or the amount of benefit consumers receive above and beyond the price paid by the consumer.

What does the gap between the market price and the supply (marginal cost curve) curve represent?

The gap represents the producer surplus or the amount of benefit (profit) firms receives above and beyond the cost required to produce the goods.

Consumer surplus

The net benefit of the consumer, which is identified as the area under the price line and above the supply curve and to the left of the quantity.

Producer Surplus

The net benefit of the producer which is identified as the area under the price line and above the supply curve and to the left of the quantity.

On a market supply and demand graph, how do you identify the producer surplus at a given quantity?

The producer surplus is the area bounded by the supply curve, the market price and the level of output (or consumption).

Market efficiency is maximized when

The sum of producer surplus and consumer surplus is maximized.

What does the supply (Marginal Cost) curve represent in terms of producer behavior?

The supply curve represents the cost to industry (the value of the additional resources required) of providing one more unit of the good.

If MB < MC, then it is best for society to do what?

To produce and consume less.

If MB > MC, then it is best for society to do what?

To produce and consumer more of the good in question.

T/F: The market demand curve represents the aggregation of the demand curves of all individual consumers.

True

T/F: The market supply curve represents the aggregation of the supply curves of all individual firms.

True