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ECON 1B03 Chapter 5: Chapter 5

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School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Document Summary

Economic welfare: are benefits that consumers and firms receive by participating in the market. Consumer surplus: the benefit consumers receive when the price they pay for a good is less than the dollar amount they place on the good. Producer surplus: the benefit the sellers receive when the price they receive is more than the bottom-dollar price they need to produce and offer their good for sale. Total surplus = consumer surplus + producer surplus. Total surplus is the consumers (demand) minus the cost to producers (supply) Total surplus is maximized in a perfectly competitive equilibrium. It measures the total benefit enjoyed by consumers and producers in the market. You can only get surplus if you buy or sell a good. Deadweight loss, dwl: is a loss in total surplus when the quantity traded is less than the competitive equilibrium quantity. Cs and ps are the areas when we are in a competitive equilibrium.

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Related Questions

Economic efficiency in a competitive market is achieved when

A. economic surplus is equal to consumer surplus.

B. the marginal benefit equals the marginal cost from the last unit sold.

C. consumers and producers are satisfied.

D. producer surplus equals the total amount firms receive from consumers minus the cost of production.

When a competitive equilibrium is achieved in a market

A. all individuals are better off than they would be if a price ceiling or price floor were imposed by the government.

B. economic surplus equals the deadweight loss.

C. the total benefits to consumers are equal to the total benefits to producers.

D. the total net benefit to society is maximized.

1. We can conclude that international trade is beneficial because, regardless of whether the country imports or exports a good, the overall increase in well-being outweighs the losses associated with trade.

Is the statement true or false?

2. Owners of firms in young industries should be willing to incur temporary losses if they believe that those firms will be profitable in the long run.€ This observation helps to explain why many economists are skeptical about the:

a. Unfair-competition argument.

b. Infant-industry argument.

c. national-security argument.

d. Jobs argument

3. Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade:

a. U.S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b. U.S. producers benefit from higher software prices, increasing producer surplus in the market.

c. U.S. software producers are harmed since the price that these producers receive will decline as the price falls to the world price.

d. total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.