Microeconomics - Chapter 7

Refer to Figure 7-5. What is the consumer surplus if the price is $100?

$2,500.

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10, the cost of mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is:

$30.

Refer to Figure 7-4. At the equilibrium price, consumer surplus is:

$300.

If Roberta sells a shirt for $30, and her producer surplus from the sale is $23, her cost must have been:

$7.

Refer to Table 7-6. If the market price is $1,000, the producer surplus in the market is:

$750.

Refer to Figure 7-3. If the price of the good is $6, then consumer surplus is:

$8.

Refer to Figure 7-6. If the price of the good is $8.50, then producer surplus is:

$8.00.

The "invisible hand" is:

A concept developed by Adam Smith to describe the virtues of free markets.

An allocation is inefficient if:

A good is not being produced by the sellers with the lowest costs, and/or if a good is not being consumed by the buyers who value it most.

Refer to Figure 7-1. When the price is P2, consumer surplus is:

A.

Refer to Figure 7-7. Which area represents producer surplus when the price is P2?

ACH.

Formula for Calculating Consumer Surplus:

Consumer Surplus = Value to Buyers - Amount Paid by Buyers.

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

Consumer surplus increases.

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

Consumer surplus.

Efficiency:

The property of a resource allocation of maximizing the total surplus received by all members of society.

Total surplus is represented by the area below the:

Demand curve and above the supply curve, up to the equilibrium quantity.

The difference between a buyer's willingness to pay and the market price is:

Each buyer's consumer surplus.

Welfare economics is the study of:

How the allocation of resources affects economic well-being.

How is consumer surplus in a market measured on a demand curve?

In the area below the demand curve and above the price.

The Benevolent Social Planner:

Is an all knowing, all powerful, well-intentioned dictator/hypothetical character that is used to evaluate market outcomes (141).

The French expression used by free-market advocates, which literally translates as "allow them to do," is:

Laissez-faire.

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it:

Maximizes the combined welfare of buyers and sellers.

Refer to Table 7-1. If the price of the product is $15, then who would be willing to purchase the product?

Mike, Sandy, and Jonathan.

Refer to Table 7-1. If the price of the product is $51, then who would be willing to purchase the product?

No one.

Inefficiency exists in an economy when a good is:

Not being produced by the lowest-cost producers.

Consumer surplus is a good measure of economic well-being if:

Policymakers want to satisfy the preferences of buyers.

Formula for Calculating Producer Surplus:

Producer Surplus = Amount Received by Sellers - Cost to Sellers.

Consumer Surplus:

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

Producer Surplus:

The amount a seller is paid for a good minus the seller's cost of providing it.

The producer surplus in a market is measured in:

The area below the price and above the supply curve (140).

Producer surplus measures:

The benefit sellers receive from participating in a market (138).

Consumer surplus measures:

The benefit that buyers receive from a good as the buyers themselves perceive it (136).

At any quantity, the price given by the supply curve shows:

The cost of the marginal seller, the seller who would leave the market first if the price were any lower (138).

The buyers willingness to pay is reflected by:

The height of the demand curve (134).

The "invisible hand" refers to:

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

Willingness to Pay:

The maximum amount that a buyer will pay for a good.

Equality:

The property of distributing economic prosperity uniformly among the members of society.

The supply curve (height) is used to measure producer surplus because:

The supply curve reflects seller's costs (138).

The sum of the consumer surplus of all buyers in a market is:

The total area below the demand curve and above the price (134).

Total surplus is represented by:

The total area between the supply and demand curves to the point of equilibrium (142).

Total Surplus:

The total value to buyers of the goods, as measured by their willingness to pay, minus the total cost to sellers of providing those goods.

The height of the demand curve represents:

The value buyers place on the good, as measured by their willingness to pay for it.

Cost:

The value of everything a seller must give up to produce a good.

A seller's opportunity cost measures:

The value of everything she must give up to produce a good.

The goal in developing the concept of consumer surplus is:

To make judgements about the desirability of market outcomes (135).

Formula for Calculating Total Surplus:

Total Surplus = (Value to Buyers - Amount Paid by Buyers) + (Amount Received by Sellers - Cost to Sellers).

We can say that the allocation of resources is efficient if:

Total surplus is maximized.

In a market, the marginal buyer is the buyer:

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