7-1 Consumer Surplus
We begin our study of welfare economics by looking at the benefits buyers receive from
participating in a market.
7-1a Willingness to Pay
Imagine that you own a mint-condition recording of Elvis Presley's first album. Becaus
The Price Elasticity of Demand and Its Measurement
Elasticity is a measure of how much one economic variable responds to changes in another economic variable.
Measuring the Price Elasticity of Demand
Price elasticity of demand The responsiveness of the qu
Production Possibilities Frontiers and Opportunity Costs
Production possibilities frontier (PPF) is a curve showing the maximum attainable combinations of two products that
may he produced with available resources and current technology.
Graphing the Prod
Three Key Economic Ideas
A market is a group ofbuyers and sellers ofa good or service and the institution or arrangement by which they come
together to trade.
As we study how people make choices and interact in marng we will return to these three importan
1. Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one
lawn for $14, a second lawn for $19, and a third lawn for $25. Also suppose that three neighbors
are interested having their lawns mowed. Mrs. Jones woul
When the federal government crafts environmental policies that make it less expensive for firms
to follow green initiatives, the policies are consistent with economic incentives.
Chapter 11 Notes
Average total cost is equal to the total cost divided by the output.
The downward sloping part of the long run average cost curve is where the firm is achieving economies
of scale. Economies of scale happen when the long run average cost
Chapter 5 Notes
An externality is a benefit or cost that affects someone who is not directly involved in the production or
consumption of a good or service.
The private cost is the cost borne by the producer of a good or service
The social cost is the tot
Chapter 4 Notes
Consumer Surplus and Producer Surplus
Consumer surplus measures the dollar benefit consumers receive from buying goods or services in a
particular market. Producer surplus measures the dollar benefit firms receive from selling goods or
Chapter 13 Notes
Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market
If the Starbucks coffeehouse located a mile from where you live raises the price of a cafe latte from $3.00
to $3.25, it will lose some, but not all, of its c
THE PRICE ELASTICITY OF DEMAND AND ITS MEASUREMENT
Elasticity is a measure of how much one economic variable responds to changes in
another economic variable.
MEASURING THE PRICE ELASTICITY OF DEMAND
Price elasticity of demand the responsiveness
Chapter 3 Econ
Demand schedule is a table showing the relationship between the price of a product and the quantity of
Quantity demanded is the amount of a good or service that a consumer is willing and able to purchase at
a given price
Refer to the graph below. Assume that this is a competitive
market. Which of the following does not exist when
the price is $2.00?
A deadweight loss.
This firm is a perfectly competitive firm.
This firm is currently earning zero economic profit
This firm has excess capacity in the amount of (Q4 Q2)
Both b and c are correct.
A market has the following characteris
Test 1: Practice Questions
Suppose that for a given activity, we have the
following: MC = 600; MB = 750. In order to
maximize total net benefit (Profit),
a. The level of the activity should be reduced.
b. More should be produced.
c. No change should be
The economy is made up of thousands of firms that produce the goods and services you enjoy every
day: General Motors produces automobiles, General Electric produces lightbulbs, and General Mills
produces breakfast cereals. Some firms,
Microeconomics vs. Macroeconomics
Micro- The study of how households and firms make choices, how they interest in markets &
how the government attempts to influence their choices
Macro- the study of the economy as