ECO 201 Unit 6

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cost of production.

The maximum price that a buyer will pay for a good is called

willingness to pay

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

$2,300

Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be

$45.

Bob purchases a book, and his consumer surplus is $3. If Bob is willing to pay $8 for the book, then the price of the book must be

$5

Bill created a new software program he is willing to sell for $300. He sells his first copy and enjoys a producer surplus of $250. What is the price paid for the software?

$550.

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is

$6.

All else equal, what happens to consumer surplus if the price of a good decreases?

Consumer surplus increases.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Consumer surplus is equal to the

Value to buyers - Amount paid by buyers.

Producer surplus is the

amount a seller is paid minus the cost of production.

Producer surplus measures the

benefits to sellers of participating in a market.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

the market for wallpaper is in equilibrium.

The "invisible hand" refers to

the marketplace guiding the self-interests of market participants into promoting general economic well-being.