Chapter 5 Efficiency

Graphically, surplus is represented at the ___ shaped area between a supply of demand curve and the market quantity.

Triangle

Surplus is a way of measuring who ___ from transactions, and by how much.

Benefits

When the price is lowered below the equilibrium price, although buyers lose some well-being because there are fewer transactions taking place,

Buyers gain some well-being at the expense of sellers.

Measuring ___ surplus tells us how much better or worse off buyers are when the price changes.

Consumer

The difference between willingness to pay and the actual price is the net benefit that a

Consumer receives from purchasing a good or service.

A line showing the maximum willingness to pay for all buyers is the ___ curve.

Demand

To describe the overall benefits that sellers received in a market, we can add up each seller's

Difference between what they are willing to accept and the market price.

To describe the overall benefits that buyers received in a market, we can add up each individual's

Difference between what they are willing to pay and the market price.

When a perfectly competitive, well-functioning market maximizes total surplus, the market is said to be ___.

Efficient

Willingness to pay for a product represents the price at which the benefit received is

Equal to the benefit of spending the money on another alternative.

True or false: in a market with voluntary transactions, the results are like those in a zero-sum game.

False

When the price is lowered below the equilibrium price, sellers gain some well-being at the expense of buyers; although both lose some well-being because there are fewer transactions taking place.

False

Measuring producer surplus tells us:

How much better or worse off sellers are when the price changes.

Equilibrium in a perfectly competitive market, well-functioning market

Maximizes total surplus and is, therefore, efficient.

Dead-weight loss is the total surplus at the market equilibrium before the intervention ___ the total surplus after a market intervention.

Minus

When there are people who would like to make exchanges but cannot, for one reason or another, we say that a market is

Missing

Producer surplus is the ___ benefit that a producer receives from the sale of a good or service.

Net

The ___ cost of selling a product is the use of enjoyment that the seller could get from keeping the product or from doing something else with the money that would be required to make it.

Opportunity

When the price is artificially high and some transactions no longer take place,

Part of the consumer surplus is transferred to producers. Part of the consumer and producer surplus is lost to both consumers and producers.

Which of the following statements are true if the price is artificially low and some transactions no longer take place?

Producer surplus falls. Consumer surplus may rise or fall.

Markets can be missing for a variety of reasons:

Public policy prevents the market from existing. Lack of accurate information or communication between potential buyers and sellers. Lack of technology that would make the exchanges possible.

Economists call the maximum price that a buyer is willing to pay the ___ price.

Reservation

The concept of surplus measures the benefit that people receive when they:

Sell something for more than they would have been willing to accept. Buy something for less than they would have been willing to pay.

When the price is raised above the equilibrium price, although sellers lose some well-being because there are fewer transactions taking place,___?

Sellers gain some well-being at the expense of buyers.

Economists use the word surplus to describe which concepts?

Selling something for more than the minimum you would have accepted. Buying something for less than you would have been willing to pay.

Total producer surplus is represented graphically by the area above the ___ curve and beneath the equilibrium ___.

Supply Price

Calculations of ___ can clearly show who benefits and who loses from policies such as taxes and minimum wages.

Surplus

We can calculate dead-weight loss by

Surplus market equil before intervention minus surplus market equil after intervention. The area of the dead-weight loss triangle on a graph.

Dead-weight loss

Surplus market equilibrium before intervention minus surplus market equilibrium after intervention. The area of the dead-weight loss triangle on a graph.

When the price is above or below the equilibrium price, ___.

The total surplus decreases relative to the market equilibrium

Deadweight loss is a loss of ___ surplus that occurs because the quantity traded is different from the market equilibrium quantity.

Total

In a missing market in which quantity is at or close to zero,

Total surplus is lower than it could be if a well-functioning market existed

In a market equilibrium,

Total surplus is maximized.

The areas of consumer surplus and producer surplus make up the total surplus.

True

The supply curve is ___ (upward/downward) sloping when producers are willing to sell more at higher prices.

Upward

Along the supply curve, at every price, each potential seller has a ___ to sell.

Willingness

In a zero-sum game, the net value of a transaction is ___.

Zero

Total surplus

is the sum of consumer and producer surplus. Exits as a result of participation in market exchanges.