AP Econ - Chapter 7: Consumers, Producers, and the Efficiency of Markets

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willingness to pay

the maximum amount that a buyer will pay for a good

why does a decrease in price increase consumer surplus?

the original buyers in the market get more consumer surplus new members also get consumer surplus

what is total surplus?

the sum of consumer and producer surplus

what area on a supply and demand graph represents total surplus?

the total area between supply and demand curves up to the point of equilibrium

why does a higher price raise producer surplus?

-the original sellers get more for what they sell -new sellers come in because they are willing to produce the good at the higher price

what are the two ways producer surplus can be increased?

1. increase in price 2. decrease in cost

what does the height on the demand curve (with the stairs) show?

the willingness to pay of the marginal buyer

what are the two ways to increase consumer surplus?

1. price decrease 2. greater value placed on the good or service

can producers have different costs with the same exact supplies? why or why not?

they can have different costs because they all value their time differently

what is the area of the producer surplus?

area below the price and above the supply curve

consumer surplus

a buyer's willingness to pay minus the amount the buyer actually pays

what area on the demand curve measures consumer surplus?

below the demand curve, above the price

from what standpoint is consumer surplus measured?

from the eyes of the buyers

what does willingness to pay measure?

how much a buyer values a good

what does a lower market price do to the demand?

it attracts more buyers, so it increases

what is producer surplus?

it measures the benefit to sellers of participating in a market

producer surplus (actual measurement)

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

what is consumer surplus?

the benefits buyers receive from participating in a market

what does the height of the supply curve show?

the cost of the marginal seller

what is the consumer surplus at a buyer's willingness to pay?

zero dollars and zero cents, girly pop


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