Econ 2113 Chapter 7 - Bowen

if a consumer is willing to pay $20 for a particular good and if he pays $16 for that good, then for that consumer, consumer surplus amounts to

$4

in what situation is the allocation of resources efficient

1. the goods are consumed by the buyers who value them most highly 2. the goods are produced by the producers with the lowest costs 3. raising or lowering the quantity of a good would not increase total surplus

If the price of a good decreases what happens with consumer surplus?

a lower price increases consumer surplus

When price is decreasing what are two reasons in increase in CS?

buyers entering the market existing buyers paying a lower price

On a graph, consumer surplus is represented by what area?

consumer surplus equals the area under the demand curve above the market price, from 0 to Q

what does a consumer's willingness to pay measure?

how much a buyer values a good

What is laissez-faire?

policy of minimum governmental interference in the economic affairs of individuals and society.

Producer surplus formula

price - cost

Which of the following is true when the price of a good or service rises?

some buyers leave the market

What is welfare economics

studies how the allocation of resources affects economic well-being

what is a market power

the ability to alter the market price of a good or service

What is consumer surplus?

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it CS = WTP - P

Who is the marginal buyer?

the buyer who would leave the market if the price were any higher

What is willingness to pay?

the maximum amount that a buyer will pay for a good

Who is the marginal seller?

the seller who would leave the market if the price were any lower

what is the area of total surplus on the graph

the triangle between the supply and demand (A to F)

producer surplus directly measures

the well-being of sellers

What is the area of Producer surplus on the graph?

total producer surplus equals the area above the supply curve under the price, from 0 to Q

total surplus is equal to what

value to buyers - cost to sellers

when is a seller willing to sell?

when price is higher than the cost of production

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

Cost is a measure of what

willingness to sell