Economics T Or F Ch. 7

Welfare economics is the study of the welfare system.

The equilibrium of supply and demand in a market maximizes the total benefits received by buyers and sellers.

The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.

For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

The area above the demand curve and below the price measures the consumer surplus in a market.

Consumer surplus measures the benefit to buyers of participating in a market.

A buyer is willing to buy a product at a price greater then or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay.

Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product.

In a competitive market, sales go to those producers who are willing to supply the products at the lowest price.

Producer surplus is the amount a seller is paid minus the cost of production.

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window cleaning is $3 per window. If Connie cleans 100 windows, her producer surplus is $100.

At any quantity, the price given by the supply curve shows the cost of the lowest cost seller.

The area below the price and above the supply curve measures the producer surplus in a market.

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

Total surplus in a market is consumer surplus minus producer surplus.

Total surplus = Value to buyers - Costs to sellers

Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs.

Efficiency is related to the size of the economic pie, where equity is related to how the pie gets sliced and distributed.

Total surplus in a market can be the area below the supply curve and the area above the demand curve.

Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

In order for market outcomes to maximize the total benefits to buyers and seller, the market must be perfectly competitive.

When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

Welfare economics is the study of the well-being.

The area below the demand curve and above the price measures the consumer surplus in a market.

A buyer is willing to buy a product at a price less then or equal to his willingness to pay, but would refuse to buy a product at a price greater than his willingness to pay.

At any quantity, the price given by the supply curve shows the cost of the lowest marginal seller.

Total surplus in a market is consumer surplus plus producer surplus.

Total surplus in a market can be the area above the supply curve and the area below the demand curve.

Efficiency refers to whether the maximum amount of output was produced from a given number of inputs.