L6

Question 1

What is consumer surplus?

Answer 1

When the buyers value the product more than the market price and get more satisfaction from buying

Question 2

What is producer surplus?

Answer 2

The total benefit they get from selling at market price

Question 3

What is economic efficiency?

Answer 3

Maximization of aggregate customer and producer surplus

Question 4

Describe “externalities” and “lack of information” in terms of market failure

Answer 4

Externalities: When producer or customer takes actions that effect other producers/customers but is not accounted for in the market price
Lack of information: When the customers lack information about the product to make a utility-maximizing decision

Question 5

Why can the government set prices higher than the market price?

Answer 5

Because then they buy it themselves at this high price so there will be customers???????????????