ECON Ch 7

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(T/F) Consumer surplus is the buyer's willingness to pay minus the seller's cost

False

(T/F) Free markets are efficient because they allocate output to buyers who have a willingness to pay below the price.

False

(T/F) Producer surplus is a measure of the unsold inventories of suppliers in a market

False

(T/F) Producing more of a product always adds to total surplus

False

(T/F) Total surplus is the seller's cost minus the buyer's willingness to pay.

False

(T/F) Consumer surplus is a good measure of buyers' benefits if buyers are rational

True

(T/F) Cost to the seller includes the opportunity cost of the seller's time.

True

(T/F) Equilibrium in a competitive market maximizes total surplus.

True

(T/F) Externalities are side effect, such as pollution, that are not taken into account by the buyers and sellers in a market.

True

(T/F) If the demand curve in a market is stationary, consumer surplus decreases when the price in the market increases.

True

(T/F) Producer surplus is the area above the supply curve and below the price.

True

(T/F) The height of the supply curve is the marginal seller's cost.

True

(T/F) The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient.

True

(T/F) The two main types of market failure are market power and externalities.

True

Producer surplus is the area

above the supply curve and below the price.

Producer surplus

amount received by sellers - cost to sellers

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

are inefficient.

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

Total surplus

consumer surplus + producer surplus

If buyers are rational and there is no market failure,

free market solutions are efficient and free market solutions maximize total surplus

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

increases producer surplus

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

maximize consumer surplus

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

maximizes total surplus

A buyer's willingness to pay is that buyer's

maximum amount they are 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 of production by buyers exceeds the cost of production.

The seller's cost of production is

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

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.

Consumer surplus

value to buyers - amount paid by the buyers


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