EREC 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

. Producer surplus is the area

below the price and above the supply curve.

Consumer surplus:

measures the benefit buyers receive from participating in a market.

A supply curve can be used to measure producer surplus because it reflects:

sellers' costs

In a market, the marginal buyer is the buyer:

who would be the first to leave the market if the price were any higher.

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.

Producer surplus is:

the amount a seller is paid minus the cost of production.

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is:

$1.85

A consumer's willingness to pay directly measures:

how much a buyer values a good.

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

At Nick's Bakery, the cost to make homemade chocolate cake is $4 per cake. As a result of selling five cakes, Nick experiences a producer surplus in the amount of $17.50. Nick must be selling his cakes for:

$7.50 each

The marginal seller is the seller who:

would leave the market first if the price were any lower.

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct?

For the three individuals together, consumer surplus amounts to $35.

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increase

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.

On a graph, the area below a demand curve and above the price measures:

consumer surplus

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

Consumer surplus decreases.

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?

it increases

Cost is a measure of the:

seller's willingness to sell.