Chapter 7 Consumers, Producers, and the Efficiency of Markets PE

What does welfare economics study?

• The behavior of consumers in a market

• The allocation of resources and its effect on economic well-being

• The production costs of goods

• The impact of government regulations on markets

What is consumer surplus?

• The cost of producing a good

• The total amount paid by consumers

• The difference between what consumers are willing to pay and what they actually pay

• The total revenue received by producers

In the context of consumer surplus, what does 'willingness to pay' refer to?

• The total cost of production

• The average price of goods in a market

• The maximum amount a buyer is willing to pay for a good

• The minimum price a seller will accept

What happens to consumer surplus when the price of a good decreases?

• It decreases

• It becomes negative

• It remains the same

• It increases

What is producer surplus?

• The difference between the amount sellers receive and their costs

• The total cost of production

• The amount consumers are willing to pay

• The total revenue from sales

How is total surplus defined?

• The difference between total revenue and total cost

• The sum of consumer surplus and producer surplus

• Producer surplus minus consumer surplus

• Consumer surplus minus producer surplus

What does market efficiency refer to?

• Maximizing government revenue

• Equal distribution of resources

• Maximizing total surplus received by all members of society

• Minimizing production costs

What is the role of the 'benevolent social planner'?

• To maximize the economic well-being of everyone in society

• To regulate prices in the market

• To ensure fair wages for workers

• To maximize profits for businesses

What is an externality?

• A cost or benefit that affects a party who did not choose to incur that cost or benefit

• A government regulation on market prices

• A type of market failure

• A measure of consumer satisfaction

What is the effect of market power on efficiency?

• It guarantees fair prices for consumers

• It increases market efficiency

• It has no effect on market efficiency

• It can lead to market inefficiencies