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.

The maximum price that a buyer will pay for a good is called

• consumer surplus.

• willingness to pay.

• equilibrium.

• efficiency.

• $20.

• $30.

• $50.

• $80.

• $150.

• $200.

• $350.

• $550.

At the equilibrium price of a good, the good will be purchased by those buyers who

• value the good more than price.

• value the good less than price.

• have the money to buy the good.

• consider the good a necessity.

When a buyer’s willingness to pay for a good is equal to the price of the good, the

• buyer’s consumer surplus for that good is maximized.

• buyer will buy as much of the good as the buyer’s budget allows.

• price of the good exceeds the value that the buyer places on the good.

• buyer is indifferent between buying the good and not buying it.

Consumer surplus is equal to the

• Value to buyers - Amount paid by buyers.

• Amount paid by buyers - Costs of sellers.

• Value to buyers - Costs of sellers.

• Value to buyers - Willingness to pay of buyers.

• $6.

• $2.

• $8.

• $4.

Dawn’s bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

• only existing customers who now get lower prices on the gowns they were already planning to purchase.

• only new customers who enter the market because of the lower prices.

• both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

• Consumer surplus does not increase; it decreases.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

• seller’s producer surplus.

• seller’s cost of production.

• seller’s profit.

• average willingness to pay of buyers of the product.