Welfare Economics (Ch.7)

The marginal seller is the seller

• who has the largest producer surplus

• who would leave the market first if the price were any lower

• who supplies the smallest quantity of the good among all sellers

• for whom the marginal cost of producing one more unit of output is the lowest among all sellers

The marginal buyer is

• the buyer for whom the marginal benefit of one more unit of the good is the highest among all buyers.

• the buyer who demands the smallest quantity of the good among all buyers.

• the buyer who would leave the market first if the price were any higher.

• the buyer who has the largest consumer surplus.

Company 1 incurs a cost of 70 cents to produce a t-shirt, while Company 2 incurs a cost of 90 cents to produce a t-shirt.  Which of the following price increases would cause both companies to experience an increase in producer surplus?

• The price of a t-shirt increases from 60 cents to 75 cents.

• The price of a t-shirt increases from 60 cents to 80 cents.

• The price of a t-shirt increases from 60 cents to 95 cents.

• All of these price increases would cause both companies to experience a loss in producer surplus.

TOTAL SURPLUS is represented by the area below the

• demand curve and above the price.

• demand curve and above the supply curve, up to the equilibrium quantity.

• price and up to the point of equilibrium.

• demand curve and above the horizontal axis, up to the equilibrium quantity.

Consumer surplus is

• the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

• the amount a buyer is willing to pay for a good minus the cost of producing the good.

• the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.

• a buyer's willingness to pay for a good plus the price of the good.

Producer Surplus is

• represented on a graph by the area below the demand curve and above the supply curve

• the amount a seller is paid minus the cost of production

• also referred to as excess supply

• all of the above

A demand curve reflects the

• willingness to pay of all buyers in the market.

• value each buyer in the market places on the good.

• highest price buyers are willing to pay for each quantity.

• all of the above

If the government removes a binding price ceiling in a market, then the producer surplus in that market will decrease.

• True

• False

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

• True

• False

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it maximizes the combined welfare of buyers and sellers.

• True

• False