Econ 4.2

How are producer surplus and consumer surplus​ affected?

Consumer surplus​ decreases, but the overall effect on producer surplus depends on the size of the shift of the supply curve.

In the​ diagram, marginal benefit is ____________ marginal cost at output level Q1. This output level is considered economically __________

Greater than, inefficient

Briefly explain whether you agree with the following​ statement: ​"A lower price in a market always increases economic efficiency in that​ market."

I​ disagree, because economic efficiency declines if price falls below the market equilibrium.

Because economic surplus is the ________of the benefit to firms and the benefit to​ consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this​ reason, it is appropriate to label economic surplus as _______surplus

Sum, Social

Briefly explain whether you agree with the following​ statement: ​"If consumer surplusLOADING... in a market​ increases, producer surplusLOADING... must​ decrease."

The statement is incorrect. Consumer surplus​ (and producer​ surplus) could increase by decreasing deadweight loss.

Briefly explain whether you agree with the following​ statement: ​"If at the current quantity marginal benefitLOADING... is greater than marginal costLOADING...​, there will be deadweight loss in the market. ​ However, there is no deadweight loss when marginal cost is greater than marginal​ benefit."

The statement is incorrect. If marginal cost is greater than marginal benefit​ (just as when marginal benefit is greater than marginal​cost), there will be deadweight loss.

Economists define economic efficiency in this way

To help policymakers understand the negative consequences of price ceilings. To help policymakers understand the negative consequences of taxes. To help policymakers understand the negative consequences of price floors. To illustrate the benefits of a competitive market equilibrium. E. ALL OF THE ABOVE.

Economic efficiency

both A & B A. is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum. B. is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production.

Economic surplus at Q3 would be smaller than at Q2 because if Q3 units were​ produced, then some units for which marginal cost is greater than marginal benefit would be produced.

greater than, be

Economic surplus at Q1 would be smaller than at Q2 because if Q1 units of output were​ produced, then some units for which marginal benefit is greater than marginal cost would not be produced.

greater than, not be

According to an article in the Wall Street Journal​, restaurants such as​ McDonald's and​ Wendy's have the goal of using in their hamburgers only meat from cattle that were raised without being fed antibiotics. Using this method of raising cattle increases their cost. Suppose that consumers react to the news of restaurants selling​ antibiotic-free hamburgers by increasing their demand for hamburgers. ​Source: Julie​ Jargon, "McDonald's to Trim Antibiotics from Its​ Beef," Wall Street Journal​, December​ 11, 2018. Refer to the graph at right depicting the market for hamburgers. Assume the initial equilibrium occurs at point​ 'A'. The events described result in an increase in demand ​(D1 to D2​), and a decrease in supply. The the new supply curve is somewhere to the left of S1. Under what conditions will the economic surplus increase in the market for​ hamburgers?

if the supply curve shifts left LESS than the demand curve shifts to the right

A student​ argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is​ largest." This statement is false because

the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.

When a competitive market is in​ equilibrium, what is the economically efficient level of​ output?

the output level where marginal cost is equal to marginal benefit

Deadweight loss is

the reduction in economic surplus resulting from a market not being in competitive equilibrium.

Economic surplus is

the sum of consumer surplus and producer surplus.

Economic surplus is the sum of consumer surplus and producer surplus.

true

Economic surplus in a market is the sum of​ _____ surplus and​ _____ surplus. In a competitive​ market, with many buyers and sellers and no government​ restrictions, economic surplus is at a​ _____ when the market is in​ _____.

​consumer; producer;​ maximum; equilibrium