Lecture 8

Question 1

scare resources might be allocated by:

Answer 1

-Market price
-command
-majority rule
-first come, first serve
-lottery

Question 2

Value is…
Price is…

Answer 2

Value is what we get, price is what we pay

Question 3

describe value

Answer 3

The value for one more unit of a good or service is its marginal benefit.

value is measured as the MAX price that a person is willing to pay.

Question 4

what does willingness to pay determine

Answer 4

Determines demand, a demand curve is a marginal benefit curve

Question 5

What is consumer surplus

Answer 5

-excess benefit received from a good over the amount paid for it.

Question 6

how to calculate consumer surplus

Answer 6

-the area below the demand curve, above market price @ level of output (Q)

1/2BH

Question 7

Supply and Marginal cost

Answer 7

-firm’s goal is to make a profit
-firms must sell their output for a price that exceeds the cost of production.

Question 8

Cost is…
Price is…

Answer 8

Cost is what the producer gives up; price is what the producer receives.

-marginal cost is the minimum a firm is willing to accept

Question 9

What is a producer surplus?

Answer 9

The excess amount received from the sale of a good over the cost of producing it.

Price received for good - minimum-supply price (marginal cost), summed over quantity sold

Question 10

How to calculate producer surplus

Answer 10

area above the supply curve, below market price @ level of production (Q)

1/2BH