chapter 7

at any quantity the height of the demand curve is the new wtp of the marginal buyer, who would leave the market if p were higher

1. Fact

Triangle Area Formula

A=1/2bh

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

Consumer surplus decreases.

true or false: Producers benefit most from falling production costs when supply is very elastic.

False, because if the supply is elastic then a shift in supply will benefit consumers

True or False: Suppose there is an increase in supply that reduces market price. Consumer surplus increases because (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market.

True

True or False: When demand increases so that market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

True

True or false: All else equal, an increase in supply will cause an increase in consumer surplus.

True

what will cause an increase in consumer surplus?

a technological improvement in the production of the good

Producer Surplus=

amount a seller is paid for a good minus the seller's cost p-cost

When a buyer's willingness to pay for a good is equal to the price of the good, the

buyer is indifferent between buying the good and not buying it.

total surplus=

consumer surplus + producer surplus

area of consumer surplus

consumer surplus is the area above the price and under the demand curve

When is an allocation of resources efficient?

if it maximizes total surplus

If the cost of producing sofas decreases, then consumer surplus in the sofa market will

increase

Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will

increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches?

it decreases

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

may increase, decrease, or remain unchanged.

area of producer surplus

producer surplus is the area under price above the demand curve

cs=0

the marginal buyer at equilibrium has a

ps=0

the marginal producer at equilibrium has a

A seller will produce and sell the good/service only if

the price exceeds his or her costs, so cost is a measure of the willingness to sell

individual consumer surplus=

willingness to pay - market pay