Economics 3 (Ch7)

A seller's opportunity cost measures the

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

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of

welfare economics.

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

willingness to pay.

Welfare economics is the study of how

the allocation of resources affects economic well-being.

Economists typically measure efficiency using

total surplus.

Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His consumer surplus is

$15.

Inefficiency can be caused in a market by the presence of

*imperfectly competitive markets. *externalities. *market power. *All of the above are correct.

Which of the following will cause a decrease in producer surplus?

income increases and buyers consider the good to be inferior

All else equal, a decrease in demand will cause an increase in producer surplus.

False

Markets will always allocate resources efficiently.

False

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

All else equal, an increase in supply will cause an increase in consumer surplus.

True

Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it.

True

Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.

True

For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

True

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

True

Producer surplus measures the benefit to sellers from receiving a price above their costs.

True

Producer surplus is the

amount a seller is paid minus the cost of production.

Inefficiency exists in an economy when a good is

not being produced by the lowest-cost producers.

The "invisible hand" refers to

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

Total surplus is

equal to producer surplus plus consumer surplus.