Micro Chapter 7 homework – Flashcards
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The study of how the allocation of resources affects economic well-being is called
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welfare economics
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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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Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called
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willingness to pay
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Willingness to pay
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measures the value that a buyer places on a good
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Consumer surplus
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is the amount a consumer is willing to pay minus the amount the consumer actually pays
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If the price of the product is $15, then who would be willing to purchase the product?
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Mike, Sandy, Jonathan
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If the price of the product is $18, then the total consumer surplus is
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$46
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If price of the product is $30, then the total consumer surplus is
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$20
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When the price is P1, consumer surplus is
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A + B + C
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When the price rises from P1 to P2, consumer surplus
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decreases by an amount equal to B+C
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At the equilibrium price, consumer surplus is
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$300
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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 measures the
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benefits to sellers of participating in a market
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If the market price is $1,000, the producer surplus in the market is
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$750
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If the market price is $900, the producer surplus in the market is
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$550
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If the market price is $1,100, the combined total cost of all participating sellers is
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$2,250
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Which area represents producer surplus when the price is P1?
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BCG
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Which area represents producer surplus when the price is P2?
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ACH
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Producer surplus directly measures
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the well-being of sellers
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Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
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consumer and producer surplus
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Total surplus is
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equal to producer surplus plus consumer surplus
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At the equilibrium price, consumer surplus is
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$300
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At the equilibrium price, producer surplus is Figure 7-12
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$200
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At the equilibrium price, total surplus is Figure 7-12
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$500
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The "invisible hand" is
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a concept developed by Adam Smith to describe the virtues of free markets
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Laissez-faire is a French expression which literally means
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allow them to do
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Inefficiency can be caused in a market by the presence of
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all of the above are correct
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Market power refers to the
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ability of market participants to influence price
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The decisions of buyers and sellers that affect people who are not participants in the market create
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externalities
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When markets fail, public policy can
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potentially remedy the problem and increase economic efficiency
