chapter 7 - efficiency of markets

Question 1

welfare economics

Answer 1

the study of how the allocation of resources affects economic well being

Question 2

how can you maximize the total welfare of consumers and producers?

Answer 2

if you take the price that balances the supply and demand for that good

Question 3

willingness to pay

Answer 3

the buyers maximum amount that they are going to pay for that good
- good goes to the person that values it the most

Question 4

consumer surplus

Answer 4

the amount a buyer is willing to pay for a good - the amount they buyer actually pays for it

• if i buy dunks for 200 but they were originally 250, the consumer surplus is 50 dollars

Question 5

marginal buyer

Answer 5

the buyer who would leave the market first if the price was any higher

Question 6

what section of the graph is the consumer surplus located?

Answer 6

area of the triangle above the below the demand curve

Question 7

what happens when new consumers enter the market?

Answer 7

what would look like the deadweight loss is the new benefit of having more consumers, along with the new quantity supplied

Question 8

what happens if there is an increase in consumer surplus of existing buyers?

Answer 8

reduction in the amount that they pay

Question 9

area of a triangle

Answer 9

1/2 b (h)

Question 10

willingness to sell

Answer 10

the lowest that sellers are willing to go for their good or service

1. my willingness to sell is at 200 dollars for these airpod maxes, i will NOT go lower

Question 11

producer surplus

Answer 11

willingness to sell - cost of production

if i am willing to do to work for 200 dollars but i get paid (the cost of my work) 400 dollars, my producer surplus is 200 dollars

Question 12

where is the producer surplus located on a graph?

Answer 12

above the supply curve, underneath the consumer surplus

Question 13

what happens when new sellers enter the market?

Answer 13

quantity supplied will get larger

Question 14

what happens to the sellers that were already in the market?

Answer 14

they will sell the good and get more for what they sell

Question 15

total surplus

Answer 15

consumer surplus + producer surplus

consumer surplus - benefit that buyers receive

producer surplus - the benefit that sellers receive

Question 16

how does a market exhibit efficiency?

Answer 16

if the allocation of resources maximizes total surplus

Question 17

efficiency

Answer 17

the property regarding a resource allocation of maximizing total surplus received by all members of society

Question 18

when is an allocation NOT good?

Answer 18

when a good is not being produced by the sellers with the lowest costs

OR

if the good is not being consumed by buyers who are willing to pay at the highest price for it

Question 19

equality

Answer 19

whether the various buyers and sellers in the market have similar levels of economic being