MICROECONOMICS STUDY GUIDE
Producer surplus equals Value to buyers - Amount paid by buyers. (t/f)
False
What measures the area below a demand curve and above the price?
Consumer Surplus
The term tax incidence refers to the Boston Tea Party. (t/f)
FALSE
A seller would be willing to sell a product only if the price received is less than the cost of production. (t/f)
FALSE, more
Producer surplus is the area under the supply curve to the left of the amount sold. (t/f)
False
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will decrease, and producer surplus in the industry will decrease. (t/f)
False
The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate increases, and producer surplus increases. (t/f)
False
The marginal seller is the seller who cannot compete with the other sellers in the market. (T/F)
False
Total surplus in a market is represented by the total area under the demand curve and above the price. (t/f)
False
We can say that the allocation of resources is efficient if producer surplus is maximized. (t/f)
False
When markets fail, public policy can do nothing to improve the situation. (t/f)
False
Cost refers to a seller's producer surplus.
False (opportunity cost)
A supply curve can be used to measure producer surplus because it reflects the actions of sellers. (t/f)
False, supply curve measure producer surplus
If you pay a price exactly equal to your willingness to pay, then your consumer surplus is negative. (t/f)
False. ZERO
Where is deadweight loss on a graph?
In the area "cut" from the total surplus
What happens when demand decreases what will the price and producer surplus do?
Increase
Overproduction is caused by what?
Increase in price
What happens to the consumer surplus when a product price rises?
It decreases
Equilibrium Market
Quantity of goods supplied equals the quantity of goods demanded
When analyzing the economic effects of government policies, supply and demand are useful tools of analysis. (t/f)
TRUE
A demand curve measures a buyer's willingness to pay. (t/f)
True
An allocation of resources is said to be inefficient if a good is not being produced by the sellers with the lowest cost. (t/f)
True
At the equilibrium price, the good will be purchased by those buyers who value the good more than price. (t/f)
True
Consumer surplus reflects economic well-being (t/f)
True
For the most part, all governments, federal, state, and local, rely on taxes to raise revenue for public purposes. (t/f)
True
If a tax is levied on the seller of a product the demand curve will not change. (t/f)
True
In a market, total surplus is equal to producer surplus plus consumer surplus. (t/f)
True
Total surplus in a market equals Consumer surplus + Producer surplus.(t/f)
True
When a tax is placed on the buyers of milk, the size of the milk market is reduced. (t/f)
True
If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is......
ZERO
deadweight loss
a decrease in both consumer surplus and producer surplus to inefficient level of production
Efficiency
allocation that maximizes total surplus
Where is producer surplus on a graph?
area above the supply curve and below the prices producer surplus measures...
Underproduction
less is traded than determined by the market equilibrium
inefficency
market outcome with less than maximum total surplus
Demand curve
measures a buyers willingness to pay
Overproduction
more is traded than determined by the market equilibrium
Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.
sellers willingness to sell
Externalities are defined as
side effects passed on to a party other than the buyers and sellers in the market.
Consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it (Profit)
Equity
the fair distribution of economic benefits
willingness to pay
the maximum amount that a buyer will pay for a good
equilibrium price
the price that balances quantity supplied and quantity demanded
marginal seller
the seller who would leave the market if the price were any lower
welfare economics
the study of how the allocation of resources affects economic well-being
cost
the value of everything a seller must give up to produce a good
If Mia us willing to pay $100 for shoes, but gets them for $60 her consumer surplus is $40. (t/f)
true
If demand increases, price and producer surplus will. (t/f)
true
Suppose there is an early freeze in California that ruins the lemon crop. Consumer surplus in the market for lemons decrease. (t/f)
true