Econ 2113 Chapter 7 - Bowen
if a consumer is willing to pay $20 for a particular good and if he pays $16 for that good, then for that consumer, consumer surplus amounts to
$4
in what situation is the allocation of resources efficient
1. the goods are consumed by the buyers who value them most highly 2. the goods are produced by the producers with the lowest costs 3. raising or lowering the quantity of a good would not increase total surplus
If the price of a good decreases what happens with consumer surplus?
a lower price increases consumer surplus
When price is decreasing what are two reasons in increase in CS?
buyers entering the market existing buyers paying a lower price
On a graph, consumer surplus is represented by what area?
consumer surplus equals the area under the demand curve above the market price, from 0 to Q
what does a consumer's willingness to pay measure?
how much a buyer values a good
What is laissez-faire?
policy of minimum governmental interference in the economic affairs of individuals and society.
Producer surplus formula
price - cost
Which of the following is true when the price of a good or service rises?
some buyers leave the market
What is welfare economics
studies how the allocation of resources affects economic well-being
what is a market power
the ability to alter the market price of a good or service
What is consumer surplus?
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it CS = WTP - P
Who is the marginal buyer?
the buyer who would leave the market if the price were any higher
What is willingness to pay?
the maximum amount that a buyer will pay for a good
Who is the marginal seller?
the seller who would leave the market if the price were any lower
what is the area of total surplus on the graph
the triangle between the supply and demand (A to F)
producer surplus directly measures
the well-being of sellers
What is the area of Producer surplus on the graph?
total producer surplus equals the area above the supply curve under the price, from 0 to Q
total surplus is equal to what
value to buyers - cost to sellers
when is a seller willing to sell?
when price is higher than the cost of production
Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
willingness to pay
Cost is a measure of what
willingness to sell