Econ Ch 7
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.
Willingness to pay
the maximum amount that a buyer will pay for a good
Economists typically measure efficiency using
total surplus
Efficiency
The property of a resource allocation of maximizing the total surplus received by all members of society
Equality
The property of distributing prosperity uniformly among the members of society
Total surplus is
equal to the total value to buyers minus the total cost to sellers.
Figure 7-22 Refer to Figure 7-22. The efficient price is
$70, and the efficient quantity is 100.
At the equilibrium price of a good, the good will be purchased by those buyers who
value the good more than price.
Consumer surplus equals the
value to buyers minus the amount paid by buyers.
The marginal seller is the seller who
would leave the market first if the price were any lower.
Figure 7-24 Refer to Figure 7-24. At equilibrium, total surplus is measured by the area
ABD.
Figure 7-24 Refer to Figure 7-24. At equilibrium, producer surplus is measured by the area
BDF.
Which of the following statements is correct?
Buyers always want to pay less and sellers always want to be paid more.
Which of the following events would increase producer surplus?
Sellers' costs stay the same and the price of the good increases.
Producer surplus
The amount a seller is paid for a good minus the seller's cost of providing it
Market failure
The inability of some unregulated markets to allocate resources efficiently
Welfare economics
The study of how the allocation of resources affects economic well-being
cost
The value of everything a seller must give up to produce a good
Producer surplus equals the
amount received by sellers minus the cost to sellers.
Consumer surplus
measures the benefit buyers receive from participating in a market.
The welfare of sellers is measured by
producer surplus.
Consumer surplus is a good measure of economic welfare if policymakers want to
respect the preferences of buyers.
Producer surplus directly measures
the well-being of sellers.