L6: Welfare & Government

Welfare Economics is...?

• The study of market structures

• The study of how the allocation of resources affects economic well-being

• The study of financial markets

• The study of international trade

1. 1. What does WTP stand for in the context of economics?

2. 2. and what is it defined as?

• A) Willingness to Participate; in the purchase of a good

• Willingness to Pay; A buyers willingness to pay for a good is the maximum amount the buyer will pay for that good. It measures how much the buyer values the good

• Willingness to Produce; the good that will get sold to the consumer

• Willingness to Promote; A firms willingness to promote a new product to the market

How is Consumer Surplus (CS) calculated?

• CS = P - WTP

• CS = WTP + P

• CS = WTP - P

• CS = P / WTP

What is the consumer surplus when the buyer is willing to pay £50 for a pair of trainers but the market price is £30?

• £20

• £50

• £30

• £80

How is Producer Surplus (PS) calculated?

• PS = (cost to sellers) - (amount received by sellers)

• PS = (amount paid by buyers) - (cost to sellers)

• PS = (amount received by sellers) - (cost to sellers)

• PS = (total market revenue) - (total cost to sellers)

What is the calculated producer surplus from the diagram?

• £25

• £40

• £312.5

• £15

What does the total surplus in an economy measure?

• The total taxes collected by the government

• The sum of consumer surplus and producer surplus

• The total production cost of goods and services

• The total revenue generated by businesses

How is the total surplus calculated in economic terms?

• Total surplus = Total demand - Total supply

• Total surplus = Total revenue - Total cost

• Total surplus = (Value to buyers) - (Cost to sellers)

• Total surplus = (Production cost) + (Selling price)

What does it mean for an allocation of resources to be efficient in a market context?

• A) It leads to the highest number of transactions.

• B) It maximizes total surplus.

• C) It ensures equal distribution of goods.

• D) It minimizes production costs.

According to the concept of market efficiency, how should goods be consumed and produced

• A) By the producers with the highest production costs.

• B) By the buyers who value them least.

• C) By the buyers who value them most highly and by producer

  with lowest cost

• D) Randomly to ensure fairness.