Week 3- Consumers, Producers, and the Efficiency of Market Problem Set

Question 1

Efficiency-

Answer 1

When total surplus is maximized.

Question 2

Welfare economics-

Answer 2

Study how allocation of resources affect economic well-being.

Question 3

Consumer surplus-

Answer 3

Amount buyer willing to pay - amount buyer actually pay.

Question 4

Willingness to pay-

Answer 4

Measures the value that a buyer places on a good.

Ex: Each buyers has a minimum amount to bid.

Question 5

Market power-

Answer 5

Ability of market participants to influence price.

Question 6

Producer surplus-

Answer 6

Amount a seller is paid - cost of production.

Question 7

Total Surplus-

Answer 7

Consumer surplus + producer surplus.

Question 8

Externalities-

Answer 8

Side effects passed on to a party other than buyers and sellers.

Question 9

Seller’s opportunity cost measures-

Answer 9

value of everything she must give up.

Question 10

Normative analysis-

Answer 10

Being subjective, judging, theoretical scenarios.

Question 11

Marginal seller-

Answer 11

Seller who would leave market first if price were any lower.

Question 12

Marginal buyer-

Answer 12

Buyer who leave market first if price were any higher.