Market Efficiency: Learning Activity Assignment

Welfare Economics

A branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being.

When there is ___ efficiency the ideal combination of production is based on consumer preferences.

Allocative

Which of the following is true?

Allocative inefficiency means there is deadweight loss.

When the price of a good is exactly equal to the willingness to pay there is negative surplus from the purchase.

False

Points that are productively efficient would be located where on the production possibilities frontier (PPF)?

On the PPF

The market is allocatively efficient and is maximizing economic surplus when:

demand equals supply.

Productive Efficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.

Allocative Efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

What shows how much of two goods an economy can produce when it is using all available resources as efficiently as possible?

Production possibilities frontier

Consumer Surplus

The difference between the maximum price consumers is willing and able to pay for a good or service and the price they actually pay. Consumer surplus also can be thought of as the wealth that trade creates for consumers in a market. Consumer surplus is measured in dollars. Graphically, consumer surplus is the area below the demand curve and above the equilibrium price, from zero to the quantity traded.

Producer Surplus

The difference between the price producers receive for a good or service and the minimum price they are willing and able to accept. Producer surplus also can be thought of as the wealth that trade creates for producers in a market. Producer surplus is measured in dollars. Graphically, producer surplus is the area below the equilibrium price and above the supply curve, from zero to the quantity traded.

Economic Surplus

The sum of consumer and producer surplus; a measure of the total welfare, or wealth, that trade creates for consumers and producers in a market. Also known as social welfare or total surplus.

When the price of a good is exactly equal to the willingness to pay there is no surplus from the purchase.

True

________ is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being.

Welfare economics

Graphically producer surplus is the area ____ the supply curve and ____ the market price from zero to the quantity traded.

above;below

The gains from trade are maximized when there is ____ efficiency

allocative

When the marginal benefit of the last unit equals the marginal cost of the last unit, production is ___ efficient.

allocative

A person will purchase a good or service so long as the person's marginal ____ is greater than the marginal ___

benefit ; cost

Graphically total economic surplus is the entire area _____ the supply and demand curves from a quantity of zero to the quantity traded.

between

When calculating consumer surplus for an entire market:

calculate the area below the demand curve and above the equilibrium price from zero to the quantity traded.

The difference between the maximum price consumers are willing and able to pay for a good or a service and the price they actually pay is the ____ surplus.

consumer

_____ can be thought of as the wealth that trade creates for consumers in a market.

consumer surplus

You are willing to pay $500 to have your car repaired but the mechanic charges you $400. In this case there is a:

consumer surplus of $100.

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the

deadweight

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium is the ____ loss

deadweight

Marginal benefit is measured by then___ curve.

demand

Marginal benefit equals marginal cost at the point where quantity _____ , equals quantity ____

demanded or demand

When a market is not allowed to adjust to the equilibrium price and quantity traded some ___ surplus will be lost.

economic

When a market is not allowed to adjust to the equilibrium price and quantity traded some ____ surplus will be lost.

economic

Allocative ___ refers to producing the goods people want most.

efficiency

When marginal benefit equals marginal cost the market is allocatively ___ and is therefore maximizing economic surplus.

efficient

Economic surplus is the:

gains associated with both consumers and producers in the market

All else equal as the price of a good decreases consumer surplus

increases

An economy is productively efficient when:

it is producing on the production possibilites frontier.

Consumer surplus is the difference between the:

maximum price consumers are willing and able to pay for a good or a service and the price they actually pay.

if production exceeds equilibrium quantity:

more output is being produced than the amounts that consumers want at the equilibrium price.

If production occurs below the equilibrium quantity:

potentially beneficial trades are not occurring.

All else equal ___ surplus is higher at higher prices. Listen to the complete question

producer

If an economy is getting as much output as possible from its resources it must be:

producing them at the lowest possible cost.

Producing output at the lowest possible total cost of production per unit is

productive efficiency

Producing output at the lowest possible total cost per unit of production is:

productive efficiency.

If an economy is producing on the production possibilities frontier the economy is:

productively efficient.

Marginal cost is measured by the ___ curve

supply

Graphically producer surplus is the area above the ____ curve and below the equilibrium price from ____ to the quantity traded.

supply;zero

The difference between the price producers receive for a good or a service and the minimum price they are willing and able to accept is producer

surplus

When marginal benefit equals marginal cost the market is allocatively efficient and is therefore maximizing economic

surplus/welfare

Gains from trade in the market are maximized when:

the equilibrium price is such that the quantity demanded equals the quantity supplied.

Deadweight loss is the:

the value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium

Social welfare is not maximized if the amount of output produced is greater than the equilibrium quantity because:

unsold production results in a waste of resources that could have been employed to produce other goods and services more wanted by consumers.

Deadweight loss represents _____ that was never created.

wealth

Producer surplus can be thought of as the _____ that trade creates for producers in a market.

wealth

Consumer surplus can be considered as the:

wealth that trade creates for consumers in a market.

_____ economics is a branch of economics that focuses on measuring the well-being of market participants and how changes in the market affect their well-being.

welfare

A person will purchase a good or service so long as the person's:

willingness to pay (marginal benefit) is greater than the marginal cost.