71 Questions
What is consumer surplus?
The difference between market price and what consumers would be willing to pay
What is total consumer surplus?
The sum of the individual consumer surpluses of all the buyers of a good
How does a fall in the price of a good affect consumer surplus?
It increases consumer surplus through gains to consumers who would have bought at the original price and those who are persuaded to buy by the lower price
What is producer surplus?
The net gain to a seller from selling a good
What is total producer surplus?
The sum of the individual producer surpluses of all the sellers of a good
How does an increase in the price of a good affect producer surplus?
It increases producer surplus through gains of those who would have supplied the good even at the original, lower price and...
What is the total surplus generated in a market?
The sum of the producer and the consumer surplus
Why are both consumers and producers better off in a market?
There are gains from trade
What does market equilibrium do?
Allocates consumption of the good to potential buyers who value it the most
What are property rights in well-functioning markets?
Rights of owners of valuable items to dispose of those items as they choose
What are economic signals in well-functioning markets?
Pieces of information that help people make better economic decisions
What can cause markets to be inefficient?
Gains from trade
Why do societies sometimes choose to have governments intervene in markets?
To increase equity even though it reduces efficiency
What are some features that contribute to well-functioning markets?
Property rights
What is the total surplus generated in a market?
The sum of the producer and the consumer surplus
What do property rights refer to in well-functioning markets?
The rights of owners to dispose of valuable items as they choose
What is an economic signal in well-functioning markets?
Any piece of information that helps people make better economic decisions
Why do societies sometimes choose to have governments intervene in markets?
To increase equity, even though it reduces efficiency
How does market equilibrium maximize total surplus?
By allocating consumption of the good to potential buyers who value it the most and allocating sales to potential sellers who most value the right to sell the good.
What are some reasons for market inefficiency?
Market power, externalities, information asymmetry, and public goods.
What is consumer surplus?
The difference between what a consumer is willing to pay for a good and what they actually pay
What do well-functioning markets owe their effectiveness to?
Property rights and the role of prices as economic signals
What does market equilibrium ensure about transactions?
It ensures that every consumer who makes a purchase values the good more than every seller who makes a sale, so that all transactions are mutually beneficial.
What are some features that contribute to well-functioning markets?
Property rights, economic signals, market equilibrium.
What is producer surplus?
The difference between what a producer receives for a good and the minimum amount they are willing to accept
What is consumer surplus?
The difference between market price and what consumers would be willing to pay
How is total consumer surplus calculated?
By summing the individual consumer surpluses of all buyers of a good
What is individual producer surplus?
The net gain to a seller from selling a good
How is total producer surplus calculated?
By summing the individual producer surpluses of all sellers of a good
How does a fall in the price of a good affect consumer surplus?
It increases consumer surplus through gains to consumers who would have bought at the original price and those who are persuaded to buy by the lower price
How does an increase in the price of a good affect producer surplus?
It increases producer surplus through gains of those who would have supplied the good even at the original, lower price and...
What does willingness to pay for a good represent?
The maximum amount a buyer is willing to pay for that good.
What is potential seller's cost?
The lowest price at which he or she is willing to sell a good.
What does total consumer surplus represent?
The sum of individual consumer surpluses of all buyers of a good.
What happens when the price of a good rises with respect to producer surplus?
Producer surplus increases through gains of those who would have supplied the good even at the original, lower price.
What is consumer surplus?
The difference between market price and what consumers would be willing to pay
How is total consumer surplus calculated?
By summing the individual consumer surpluses of all the buyers of a good
What is producer surplus?
The net gain to a seller from selling a good
How is total producer surplus in a market calculated?
By summing the individual producer surpluses of all the sellers of a good
What happens when the price of a good rises with respect to producer surplus?
Producer surplus increases through gains to those who would have supplied the good even at the original, lower price and gains to new suppliers
How does an increase in the price of a good affect total producer surplus?
Total producer surplus increases as the price of the good rises
What does total surplus represent in a market?
The total net gain to consumers and producers from trading in the market
What does market equilibrium maximize?
Total surplus
What do well-functioning markets owe their effectiveness to?
Property rights and economic signals
What is an economic signal in well-functioning markets?
Any piece of information that helps people make better economic decisions
Why do societies sometimes choose to have governments intervene in markets?
To increase equity, even though it reduces efficiency
What is the reason behind everyone being better off participating in a market economy?
The gains from trade
What does property rights refer to in well-functioning markets?
The rights of owners of valuable items to dispose of those items as they choose
How does market equilibrium ensure that all transactions are mutually beneficial?
It ensures that every potential buyer who doesn't make a purchase values the good less than every potential seller who doesn't make a sale
Why are both consumers and producers better off because there is a market in this good?
There are gains from trade
What does total surplus represent in a market?
The total net gain to consumers and producers from trading in the market
What is an economic signal in well-functioning markets?
Any piece of information that helps people make better economic decisions
How does market equilibrium ensure that all transactions are mutually beneficial?
By ensuring that every consumer who makes a purchase values the good more than every seller who makes a sale
What are property rights in well-functioning markets?
Rights of owners of valuable items to dispose of those items as they choose
Why do societies sometimes choose to have governments intervene in markets?
To increase equity even though it may reduce efficiency
What is consumer surplus?
The difference between what consumers are willing to pay for a good and what they actually pay
What is producer surplus?
The difference between what producers are willing to sell a good for and what they actually receive
What does willingness to pay for a good represent?
The maximum price a consumer is willing to pay for a unit of a good or service
What can cause markets to be inefficient?
Market power, externalities, information asymmetry, and public goods
What do well-functioning markets owe their effectiveness to?
Property rights and prices as economic signals
What does market equilibrium maximize?
Total surplus by allocating consumption and sales efficiently
What is consumer surplus?
The difference between market price and what consumers would be willing to pay
How is total consumer surplus calculated?
By summing the individual consumer surpluses of all the buyers of a good
What does individual producer surplus represent?
The net gain to a seller from selling a good
How does an increase in the price of a good affect producer surplus?
Producer surplus increases through two channels
What is total producer surplus in a market?
The sum of individual producer surpluses of all the sellers of a good
What happens when the price of a good rises with respect to consumer surplus?
Consumer surplus increases through two channels
What does total surplus represent in a market?
The sum of individual consumer surpluses of all the buyers of a good and individual producer surpluses of all the sellers of that good
What does willingness to pay for a good represent?
The maximum price at which consumers would buy that good and sellers are willing to sell it
What do well-functioning markets owe their effectiveness to?
Property rights, well-defined rules, enforcement mechanisms, and low transaction costs.
How does market equilibrium ensure that all transactions are mutually beneficial?
By ensuring that supply equals demand so that there is no excess supply or excess demand.
Test your knowledge about consumer surplus and its relationship with willingness to pay and changing prices. Explore the concept of individual and total consumer surplus in the market.
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