Chapter 7

• What do consumers often feel when they see the high price of turkey during Thanksgiving?


  Disappointment
• What do farmers wish regarding the price of turkey when they bring it to market?


  They wish the price were higher
• Why do buyers and sellers have opposing views on the price of turkey?


  Buyers want to pay less, while sellers want to be paid more
• What forces determine the prices of goods and services in market economies?


  The forces of supply and demand
• What does the equilibrium price of turkey ensure?


  It ensures that the quantity supplied equals the quantity demanded
• What is the focus of welfare economics?


  How the allocation of resources affects economic well-being
• What do we examine first in the study of welfare economics?


  The benefits that buyers and sellers receive from market transactions
• What conclusion does the analysis of welfare economics lead to regarding market equilibrium?


  It maximizes the total benefits received by all buyers and sellers combined
• How does the price that balances supply and demand relate to welfare economics?


  It maximizes the total welfare of consumers and producers
• What is the term for the maximum amount a buyer is willing to pay for a good?

  Willingness to pay
• What does consumer surplus measure?


  The benefit buyers receive from participating in a market
• What happens to consumer surplus when the price of a good decreases?


  It increases
• What is the relationship between the demand curve and consumer surplus?


  The area below the demand curve and above the price measures consumer surplus
• What does the height of the demand curve represent?


  The willingness to pay of the marginal buyer
• How is the market demand schedule derived?


  From the willingness to pay of potential buyers
• What does the area of the triangle BCFD represent when the price falls?

  The increase in consumer surplus attributable to the lower price
• What does consumer surplus help us judge?

  The desirability of market outcomes
• What is the significance of the area below the demand curve and above the price?

  It represents the total consumer surplus in the market
• What happens to consumer surplus when new buyers enter the market due to a lower price?


  It increases due to the surplus received by new buyers
• What is the consumer surplus for Carrie when she buys the album for $70 and values it at $80?


  $10
• What does the concept of consumer surplus allow us to measure in terms of market transactions?


  The economic well-being of buyers
• How does the demand curve change when there are many buyers in the market?


  It forms a smooth curve instead of discrete steps
• What does the area of triangle ABC represent in the context of consumer surplus?


  The consumer surplus at a higher price
• What does the area of rectangle BCED represent when the price decreases?


  The increase in consumer surplus for existing buyers
• What does the area of triangle CEF represent when new buyers enter the market?


  The consumer surplus received by new buyers
• What is the overall effect of a lower price on consumer surplus?


  It increases consumer surplus for existing and new buyers
• What is the relationship between consumer surplus and economic well-being?


  Consumer surplus is a measure of economic well-being for buyers
• How does consumer surplus relate to market efficiency?


  Higher consumer surplus indicates greater market efficiency
• What does the concept of consumer surplus help economists evaluate?


  The effectiveness of market transactions
• What is the significance of the demand curve in measuring consumer surplus?


  The demand curve reflects buyers' willingness to pay
• What does the area below the demand curve and above the price indicate?


  The total consumer surplus in the market
• How does consumer surplus change when the price of a good increases?


  It decreases
• What does the concept of consumer surplus allow us to assess in terms of market outcomes?


  The desirability of market outcomes
• What is the relationship between consumer surplus and the willingness to pay?


  Consumer surplus is the difference between willingness to pay and the market price
• What does the demand curve illustrate about buyers in the market?


  It illustrates the maximum price buyers are willing to pay
• How does the concept of consumer surplus relate to market efficiency?


  Higher consumer surplus indicates a more efficient market
• What does the area above the price and below the demand curve represent?

  Consumer surplus in the market
• What is the area representing the increase in consumer surplus when the price decreases?


  Area BCFD
• How does the reduction in price affect existing buyers' consumer surplus?


  It increases their consumer surplus by the area of rectangle BCED.
• What happens to the quantity demanded when the price decreases?


  The quantity demanded increases from $Q_1$ to $Q_2$.