Chapter 7: Micro Study Guide

I have a buyers willingness to pay for a new Honda is $30,000 she is able to actually buy it for $28,000 her consumer surplus is

$2,000

Producer surplus is the area

Above the supply curve into below the price

If a market is efficient, then

All of the above are true

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

Allow the market to seek equilibrium on its own

If a market generates a side effect or X ternal holiday, 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

Total surplus is the area

Below the demand curve and above the supply curve

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

Increases producer surplus

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

Maximizes total surplus

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

To vases will be sold in consumer surplus is $5

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

decreases consumer surplus

If buyers are rational there is no market failure

A and C are correct

The sellers cost of production is

The minimum amount the seller is willing to except for a good

Suppose that the price of a new bicycle is $300. So you values a new bicycle at $400. It costs $20 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike?

$200

Joe has 10 baseball gloves, and Sue has not. A baseball glove cost $50 to produce. If Joe values and additional baseball glove at $100 and Sue values a baseball glove at $40 then to maximize

Efficiency, Joe should receive the glove

Medical care clearly enhances peoples 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 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

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