Exam 7: Consumers Producers and the Efficiency of Markets: Part B

Unless markets are perfectly competitive,they may fail to maximize the total benefits to buyers and sellers.

Producer surplus is the amount a seller is paid minus the cost of production.

At any quantity,the price given by the supply curve shows the cost of the lowest-cost seller.

Even though participants in the economy are motivated by self-interest,the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

Suppose you sell a kayak for $600,but you were willing to sell it for $450.The buyer was willing to pay $650.The total surplus is $200.

Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25.If the market price is $40 for this transaction,then the total surplus would be $15.

Efficiency is related to the size of the economic pie,whereas equality is related to how the pie gets sliced and distributed.

Ticket scalping can increase total surplus in the market for tickets to sporting events.

Consumer surplus measures the benefit to buyers of participating in a market.

An increase in price increases consumer surplus.

Total surplus = Value to buyers - Costs to sellers.

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

Market power and externalities are examples of market failures.

In order to calculate consumer surplus in a market,we need to know willingness to pay and price.

Consumer surplus can be measured as the area between the demand curve and the supply curve.

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

The area below the demand curve and above the supply curve measures the producer surplus in a market.

Welfare economics is the study of the welfare system.

If Darby values a soccer ball at $50,and she pays $40 for it,her consumer surplus is $90.

All else equal,an increase in supply will cause an increase in consumer surplus.