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EC120 Study Guide - Midterm Guide: Economic Surplus, Demand Curve, Profit Maximization

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School
WLU
Department
Economics
Course
EC120
Professor
Ken Jackson

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EC120 Full Course Notes
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EC120 Full Course Notes
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Document Summary

Willingness to pay: measures how much a buyer values the good and is willing to pay for it. Example: elvis presley"s first album is for sale. A presley fan would value that more than someone who doesn"t enjoy his music. Consumer surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. Example: rogan is willing to pay for a new pair of cleats but only pays . Consumer surplus is a good measure of economic well-being if policy makers want to respect the preferences of buyers. Cost: the value of everything a seller must give up to produce a good. Example: grandma would accept a painting job for because her costs are and she receives producer surplus of . Producer surplus = area below the price and above the supply curve. Consumer surplus = area above the price and below the demand curve.

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Related Questions

The maximum price that a buyer is willing to pay for a good measure his:
a. willingness to pay
b. marginal benefit
c. consumer surplus
d. producer surplus
 

Efficiency in a market is achieved when

a. social planner intervenes and sets the quantity of output after evaluating buyers willingness to pay and sellers' costs

b. the sum of producer surplus and consumer surplus is maximized

c. all firms are producing the good at the same low cost per unit.

d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

True or False:

1. Consumer surplus is the buyer's willingness-to-pay minus the seller's opportunity cost of production.

2. If your willingness-to-pay for a hamburger is $3 and you paid $2, then your consumer surplus is $5.00

3. The opportunity cost of production for a seller includes the implicit cost of the seller's time.

4. The height of the supply curve at a selected quantity is the seller's opportunity cost of producing that marginal unit.

5. Total surplus (total well-being) is the seller's cost of production minus the buyer's willingness-to-pay.

6. The competitive market equilibrium outcome is efficient because it allocates the produced output to the buyers who place the highest value on the good

7. Producer surplus is the area above the supply curve and below the price.

8. The competitive market equilibrium outcome maximizes total surplus (total well-being)

9. Producing and consuming more of a good will always increase the total surplus(total well-being).