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