Chapter 7

Question 0

Consumer surplus

Answer 0

Amount buyer is willing to pay - amount buyer actually pays
(Benefits buyers receive from participating in the market)
Relates to demand curve
Lower price raises consumer surplus
Reflects economic well-being

Question 1

Willingness to pay

Answer 1

Buyers maximum; measures how much a buyer values a good

Question 2

Welfare economics

Answer 2

Socially beneficial outcomes provided by the market mechanism

Question 3

Marginal buyer

Answer 3

Leaves the market first if the price gets any higher

Question 4

Consumer surplus on demand curve

Answer 4

Area below demand curve and above price

Question 5

Producer surplus

Answer 5

Amount seller is paid - cost of production
*extra profit

Measures benefits sellers receive from participating in the market
Relates to supply curve

Question 6

Marginal seller

Answer 6

Leaves the market first if the price is any lower

Question 7

Producer surplus on supply curve

Answer 7

Area below price and above curve

Question 8

Total surplus

Answer 8

TS = value to buyers - cost to sellers

Question 9

Total surplus and the supply and demand curves

Answer 9

Area between supply and demand curves up to the equilibrium price

Question 10

Market outcomes (free markets)

Answer 10

1. Free markets allocate goods to the buyers who value them most, measured by willingness to pay
2. Free markets allocate demand for goods to sellers who can produce them at the lowest cost
3. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus