ch 7 MicroEcon

Equilibrium price of a product is the best price bc it maximizes total revenue to firms and total utility to buyers

Willingness to pay measures the amount a buyer is willing to pay for a good minus the amount a buyer actually pays

Consumer surplus is a buyers willingness to pay minus the price

A consumers willingness to pay measures the cost of a good to the buyer

If a consumer is willing and able to pay $20 for a particular good but only has to pay $14, cs is $6

Belva is willing to pay $65 for a pair of shoes for a dance, she finds one for $48, cs is $17

Shannon buys a new CD player for her car for $135, she receives cs of $25, her willingness to pay is $25

Janine would be willing to pay $50 to see Les Miserables, but buys a ticket for $30. Janine values the performance at $20

Amy buys a new dog for $150, she receives cs of $100 on her purchase

If the price a consumer pays for a product is equal to a consumer

Suppose there is an early freeze in California that ruins the lemon crop, cs in the market for lemons decrease

If you pay a price exactly equal to your willingness to pay then your cs is negative

A demand curve measures a buyers willingness to pay

Consumer surplus equals the Value to buyers – Amount paid by buyers

The area below a demand curve and above the price is the producers surplus

If the price of a good increases, consumer surplus decreases

When technology improves in the ice cream industry, consumer surplus will increase

In most markets, consumer surplus reflects economic well-being

Out-of-pocket expenses plus the value of the seller’s own resources used in production are considered to be the seller’s total revenue

Cost is the measure of the sellers willingness to sell

Cost refers to a sellers producer surplus

A supply curve can be used to measure producer surplus because it reflects the actions of sellers

A seller would be willing to sell a product ONLY if the price received was less than the cost of production

Suppose the demand for nachos increases. Producer surplus in the market for nachos will increase

If demand decreases, the price of a product, as well as producer surplus, increases.

Chocolate increases tooth decay. As a result, the equilibrium market price of chocolate increases, surplus increases

Consumer income increases. GrassSeed is a normal good, the eq $ of grass seed will decrease surplus in industry will decrease

Producer surplus equals Value to buyers-amount paid by buyers

Producer surplus is the area under the supply curve to the left of the amount sold

Marginal seller is the seller who cannot compete with other sellers in a market

Producer surplus measures the well-being of sellers

Denea produces cookies. Her production cost is $3 per dozen. She sells the cookies for $8 per dozen. Her producer surplus is $3 per dozen.

Donald produces nails at a cost of $200 per ton. If he sells the nails for $500 per ton, his producer surplus is $200 per ton.

If Roberta sells a shirt for $30, gets a producer surplus of $21, her cost must have been $21

Cost to make cake is $3 per cake. He sells 3 and receives a total of $21 worth of producer surplus, sold them for $2 each

We can say that allocation of resources is efficient if producer surplus is maximized

Total surplus = values to sellers - costs of sellers is not true

Total surplus in a market is the total costs to sellers of providing the goods minus the total value to buyers of the goods.

In a market, total surplus is equal to producer surplus plus consumer surplus.

Total surplus in a market is represented by the total area under the demand curve and above the price.

At the equilibrium price, the good will be purchased by those buyers who value the good more than price.

Total surplus in a market equals Value to buyers – Amount paid by buyers.

Total surplus in a market equals Consumer surplus + Producer surplus.

An allocation of resources is said to be inefficient if a good is not being produced by the sellers with the lowest cost.

When economists say that markets are efficient, they are assuming that markets are perfectly competitive.

Efficiency occurs when total surplus is maximized.

Inefficiency exists in any economy when a good is not being consumed by buyers who value it most highly.

The “invisible hand” refers to the marketplace guiding the self-interests of market participants into promoting general economic well-being.

Externalities are side effects passed on to a party other than the buyers and sellers in the market.

When markets fail, public policy can do nothing to improve the situation.

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will increase consumer surplus.