Econ Chp 7 – Flashcards
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Inefficiency exists in an economy when a good is
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not being consumed by buyers who value it most highly.
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In a market, the marginal buyer is the buyer
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who would be the first to leave the market if the price were any higher.
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A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
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maximizes the combined welfare of buyers and sellers.
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A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes
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decreases, and the consumer surplus in the market for red wine decreases.
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PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will
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increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games
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Economists say that a market where goods are not consumed by those valuing the goods most highly is
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inefficient
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Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus
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might increase or decrease
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When policymakers are considering a particular action, they can use consumer surplus as a(n)
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measure of the benefits to buyers as the buyers perceive them. potentially flawed measure of the benefits to buyers if the buyers are not rational
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You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game?
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$10
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Total surplus in a market is equal to
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consumer surplus + producer surplus
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Welfare economics is the study of
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how the allocation of resources affects economic well-being
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Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay is
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$105
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Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be
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$45
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Consumer surplus is a good measure of economic welfare if policymakers want to
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respect the preferences of buyers
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If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
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Consumer surplus decreases
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Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?
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It increases
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A supply curve can be used to measure producer surplus because it reflects
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sellers' costs
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Producer surplus equals the
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amount received by sellers minus the cost to sellers.
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When markets fail, public policy can
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potentially remedy the problem and increase economic efficiency
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A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
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maximizes the combined welfare of buyers and sellers
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Efficiency in a market is achieved when
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the sum of producer surplus and consumer surplus is maximized
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Total surplus is
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equal to the total value to buyers minus the total cost to sellers
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The consumption of water by local residents that may include pesticide runoff from local farmers' fields is an example of
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externalities.
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A seller's willingness to sell is
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related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. less than the price received if producer surplus is a positive number. measured by the seller's cost of production.
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Which of the Ten Principles of Economics does welfare economics explain more fully?
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Markets are usually a good way to organize economic activity
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The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
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maximizes the combined welfare of buyers and sellers
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Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they sell 40 cups. Their producer surplus for that day amounts to $19.20. Kristi & Rebecca sold each cup for
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55 cents
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Moving production from a high-cost producer to a low-cost producer will
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raise total surplus
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What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?
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Consumer surplus may increase, decrease, or remain unchanged
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Oil is used to produce gasoline. If the price of oil increases, consumer surplus in the gasoline market
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decreases
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Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Which of the following market outcomes is efficient?
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Firm A produces a monitor that David buys.
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Five hundred units of good x are currently bought and sold. The marginal buyer is willing to pay $40 for the 500th unit, and the cost to the marginal seller is $35 for the 500th unit. We know that
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the equilibrium quantity of good x exceeds 500 units. the equilibrium price of good x is somewhere between $35 and $40. 500 units is not an efficient quantity of good x.
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Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would
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increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.
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Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to
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both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.
