Review Chapter 7

Welfare economics is the study of how

• the allocation of resources affects economic well-being

• a price ceiling compares to a price floor.

• the government helps poor people.

• a consumer’s optimal choice affects her demand curve.

Willingness to pay

• measures the value that a buyer places on a good.

• is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.

• is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept

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

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.

In a market, the marginal buyer is the buyer

• whose willingness to pay is higher than that of all other buyers and potential buyers.

• whose willingness to pay is lower than that of all other buyers and potential buyers.

• who is willing to buy exactly one unit of the good.

• who would be the first to leave the market if the price were any higher

Refer to Table 7-1. If the price of the product is $15, then who would be willing to purchase the product?

• Mike

• Mike and Sandy

• Mike, Sandy, and Jonathan

• Mike, Sandy, Jonathan, and Haley

Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is

• $38

• $42

• $46

• $72

Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His consumer surplus is

• $0 because the cost exceeds his maximum willingness to pay.

• $15

• $25

• $65

If the cost of producing sofas decreases, then consumer surplus in the sofa market will

• increase

• decrease

• remain constant

• increase for some buyers and decrease for other buyers

Refer to Figure 7-1. When the price is P1, consumer surplus is

• A

• A+B

• A+B+C

• A+B+D

Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus

• increases by an amount equal to A

• decreases by an amount equal to B+C

• increases by an amount equal to B+C

• decreases by an amount equal to C