Chapter 7 - Consumers, Producers, and the Efficiency of Markets Flashcards
(26 cards)
What is the maximum amount that a buyer will pay for a good?
Willingness to pay
What measures the benefit buyers receive from participating in a market?
Consumer surplus
What is the formula to calculate the individual consumer surplus?
Amount a buyer is willing to pay - amount buyer pays
If Taylor is will to pay $100 for an album and ends up paying $80 for the album what is the consumer surplus?
$20
What is the formula to calculate the consumer surplus in the market?
The total area below the demand curve and above the price
True or False:
Consumer surplus is a good measure of economic well-being
True
Does consumer surplus include illegal drugs?
No
What is the value of everything a seller must give up to produce a good?
Cost
What is the formula to calculate individual production surplus?
Amount a seller is paid - the cost of production
What is the formula to calculate the production surplus in the market?
The total area below the price and above the supply curve
What does the price given by the supply curve show?
The cost of the marginal seller
What measures the benefit sellers receive from participating in a market?
Production surplus
What is the sum of consumer and production surplus?
Total surplus
Who wants to maximize the economic well-being of everyone in society?
The social planner
What is the formula to find total surplus?
Consumer surplus + Production surplus
True or False:
The amount paid by buyers equals the amount received by sellers
True
What is the formula to find total surplus in a market?
Value to buyers - cost to sellers
What do we say that the allocation of resources exhibits if it maximizes total surplus?
It exhibits efficiency
What maximizes the sum of production and consumer surplus?
The market equilibrium
Fill in the Blank: Value to Buyers or Cost to Sellers
At quantities less than the equilibrium quantity, the _______ exceeds the ________
The value to buyers exceeds the cost to sellers
Fill in the Blank: Value to Buyers or Cost to Sellers
At quantities greater than the equilibrium quantity, the _______ exceeds the ________
The cost to sellers exceeds the value to buyers
What is the best way to organize economic activity?
A free market
What is the ability to influence price called?
Market power
What causes welfare in a market to depend on more than just the value to the buyers and the cost to the sellers?
Externalities
