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Questions and Answers
What is the total consumer surplus calculated for Julie, Dean, and Kate based on their individual surpluses?
What is the total consumer surplus calculated for Julie, Dean, and Kate based on their individual surpluses?
- €29
- €45
- €15
- €49 (correct)
What does consumer surplus represent in relation to the demand curve?
What does consumer surplus represent in relation to the demand curve?
- The area beneath the demand curve and above the price (correct)
- The total profits made by producers
- The area above the demand curve
- The area between the equilibrium price and the quantity sold
Which formula correctly calculates the total consumer surplus at a price of €20 when the area is represented as a triangle?
Which formula correctly calculates the total consumer surplus at a price of €20 when the area is represented as a triangle?
- ½(width x height)
- ½(80 - 20) x 90
- ½(80 x 20)
- ½(90 x (80 - 20)) (correct)
What effect does a fall in the price of a good have on consumer surplus?
What effect does a fall in the price of a good have on consumer surplus?
How is the height of the triangle used in calculating consumer surplus determined?
How is the height of the triangle used in calculating consumer surplus determined?
What does consumer surplus represent?
What does consumer surplus represent?
How is total consumer surplus calculated?
How is total consumer surplus calculated?
What happens to consumer surplus if the market price decreases?
What happens to consumer surplus if the market price decreases?
If Julie is willing to pay €59 for a book and the market price is €30, what is her consumer surplus?
If Julie is willing to pay €59 for a book and the market price is €30, what is her consumer surplus?
Which of the following statements is true regarding individual and total consumer surplus?
Which of the following statements is true regarding individual and total consumer surplus?
What does a demand curve indicate about consumers' willingness to pay?
What does a demand curve indicate about consumers' willingness to pay?
If Dean's willingness to pay is €45 and the market price is €30, what is Dean's consumer surplus?
If Dean's willingness to pay is €45 and the market price is €30, what is Dean's consumer surplus?
In a market where the price of a book is set at €30, who has the greatest consumer surplus?
In a market where the price of a book is set at €30, who has the greatest consumer surplus?
What is indicated when the demand curve is downward sloping?
What is indicated when the demand curve is downward sloping?
What happens to consumer surplus when the market price of used textbooks falls?
What happens to consumer surplus when the market price of used textbooks falls?
During World War II, why was a system of rationing implemented?
During World War II, why was a system of rationing implemented?
How is consumer surplus defined?
How is consumer surplus defined?
What can be inferred about Anna’s consumer surplus if her maximum willingness to pay is significantly higher than the book's price?
What can be inferred about Anna’s consumer surplus if her maximum willingness to pay is significantly higher than the book's price?
What insight does the concept of consumer surplus provide regarding purchases?
What insight does the concept of consumer surplus provide regarding purchases?
What is a potential consequence of government-regulated pricing during shortages?
What is a potential consequence of government-regulated pricing during shortages?
What might the 'new buyers' indicated on the graph refer to?
What might the 'new buyers' indicated on the graph refer to?
If Nick's consumer surplus increases as the price of used textbooks falls from €30 to €20, what can be concluded?
If Nick's consumer surplus increases as the price of used textbooks falls from €30 to €20, what can be concluded?
What happens to producer surplus when the price of a good rises?
What happens to producer surplus when the price of a good rises?
If the price of corn rose from $2 to $7 a bushel, what was likely a result of this change?
If the price of corn rose from $2 to $7 a bushel, what was likely a result of this change?
What is total surplus in a market?
What is total surplus in a market?
What led to a surge in corn prices in the mid-2000s?
What led to a surge in corn prices in the mid-2000s?
What is producer surplus?
What is producer surplus?
How did higher prices for corn affect farmland value?
How did higher prices for corn affect farmland value?
Which of the following represents a factor influencing the increase in producer surplus?
Which of the following represents a factor influencing the increase in producer surplus?
Why are markets considered effective organizers of economic activity?
Why are markets considered effective organizers of economic activity?
What is the primary reason why consumers and producers benefit from participating in a market economy?
What is the primary reason why consumers and producers benefit from participating in a market economy?
Which statement correctly describes how market equilibrium maximizes total surplus?
Which statement correctly describes how market equilibrium maximizes total surplus?
What is indicated by the willingness to pay in a market?
What is indicated by the willingness to pay in a market?
How does the market allocate sales among potential sellers?
How does the market allocate sales among potential sellers?
What was one of the early successes of eBay after its founding in 1995?
What was one of the early successes of eBay after its founding in 1995?
Which of the following is a benefit of garage or car boot sales?
Which of the following is a benefit of garage or car boot sales?
Which scenario illustrates potential buyers valuing the good less than potential sellers?
Which scenario illustrates potential buyers valuing the good less than potential sellers?
What does market equilibrium ensure regarding potential buyers who do not make a purchase?
What does market equilibrium ensure regarding potential buyers who do not make a purchase?
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Study Notes
Changes in Prices Affect Consumer Surplus
- A decrease in the price of a good leads to an increase in consumer surplus
- This happens because consumers who would have bought the good at the original price benefit from the lower price
- Consumers who were not initially buying the good may also be persuaded to buy due to the lower price, further increasing consumer surplus
Consumer Surplus and the Demand Curve
- Consumer surplus is represented by the area under the demand curve and above the market price
- The demand curve represents the willingness to pay for a good, with higher prices corresponding to lower quantities demanded
- The area under the demand curve represents the total value consumers place on the good
- The market price represents the actual amount consumers pay for the good
- The difference between these two values represents the consumer surplus
Changes in Producer Surplus
- An increase in the price of a good leads to an increase in producer surplus
- This happens because producers who would have sold the good at the original price benefit from the higher price
- Producers who were not initially selling the good may also be persuaded to sell due to the higher price, further increasing producer surplus
Total surplus
- The total surplus in a market is the combined net gain from trading for consumers and producers
- This is the sum of consumer surplus and producer surplus
- Markets are an effective way to organize economic activity because they maximize the total surplus, which is the sum of consumer surplus and producer surplus
Market Equilibrium and Total Surplus
- Market equilibrium maximizes total surplus
- In equilibrium, the quantity of goods consumed equals the quantity produced
- The equilibrium price is the price that balances supply and demand
- This allocation ensures that the goods go to those who value them the most and come from those who can produce them at the lowest cost
- In equilibrium, every consumer who makes a purchase values the good more than every seller who makes a sale, making all transactions mutually beneficial
- No mutually beneficial transactions are missed, as potential buyers who don’t purchase value the good less than potential sellers who don’t sell
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