Micro exam 2 chapter 7

If a buyer's willingness to pay for a new Honda is $30,000 and she is able to actually buy it for $28,000, her consumer surplus is

$2,000.

Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. It costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike?

$200

An increase in the price of a good along a stationary demand curve

decreases consumer surplus.

Joe has ten baseball gloves, and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximize

efficiency, Joe should receive the glove.

If buyers are rational and there is no market failure,

free market solutions are efficient. free market solutions generate equality.

An increase in the price of a good along a stationary supply curve

increases producer surplus.

A buyer's willingness to pay is

that buyer's maximum amount he is willing to pay for a good.

If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then

the cost of production on the last unit produced exceeds the value placed on it by buyers.

The seller's cost of production is

the minimum amount the seller is willing to accept for a good.

Producer surplus is the area

above the supply curve and below the price.

Consumer surplus is the area

below the demand curve and above the price.

Total surplus is the area

below the demand curve and above the supply curve.

Adam Smith's "invisible hand" concept suggests that a competitive market outcome

maximizes total surplus.

Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market?

Two vases will be sold, and consumer surplus is $5.

In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should

allow the market to seek equilibrium on its own.

If a market generates a side effect or externality, then free market solutions

are inefficient.

If a producer has market power (can influence the price of the product in the market) then free market solutions

are inefficient.

Medical care clearly enhances people's lives. Therefore, we should consume medical care until

the benefit buyers place on medical care is equal to the cost of producing it.

If a market is efficient, then

the market allocates output to the buyers who value it the most. the market allocates buyers to the sellers who can produce the good at least cost. the quantity produced in the market maximizes the sum of consumer and producer surplus.

If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then

the value placed on the last unit of production by buyers exceeds the cost of production.