Chapter 7

Question 1

Consumer Surplus

Answer 1

Measure the benefits received by buyers from participating in a market.

Question 2

Willingness to pay

Answer 2

The height of demand curve for the good is the marginal buyer’s willingness to pay.

Is the area below the demand curve, above the price

Question 3

When the price of a good falls, demand rises

Answer 3

-Buyers receive greater surplus because they pay less
-New buyers are brought into the market

Question 4

Producer Surplus

Answer 4

Measure the benefits received by sellers from participating in the market.

Question 5

Cost of production

Answer 5

Value a producer gives up to produce a good. Is the minimum a producer is willing to accept.

Are below the price and the supply curve.

Question 6

When the price of a good rises, surplus rises

Answer 6

-Sellers receive greater surplus
-New sellers are brought into the market

Question 7

Total Surplus

Answer 7

Value to buyers - Cost to sellers

Area below the demand curve and above the supply curve

Question 8

Competitive markets allocate output to buyers who value it most

Answer 8

True

Question 9

Competitive markets allocate buyers for goods to sellers who can produce at the lowest cost

Answer 9

True

Question 10

Competitive markets produce quantities that maximizes the sum of consumer and producer surplus

Answer 10

True

Question 11

Market Failure

Answer 11

Inability of unregulated markets to allocate resources efficiently