MAN ECO

• What is consumer surplus?


  Difference between willingness to pay and actual price paid
• How is consumer surplus calculated?


  Willingness to pay minus market price
• What shape does the demand curve take when representing consumer surplus?

  Staircase
• What happens to consumer surplus if the market price decreases?

  It increases
• What is producer surplus?

  Difference between price received and production costs
• How is producer surplus calculated?

  Price received minus cost of production / Difference between price received and production costs
• In a supply curve, what does the height represent?


  Cost of the marginal seller
• What happens to producer surplus if the market price decreases?


  It decreases
• What does market efficiency refer to?

  Maximum total surplus is achieved
• What can externalities lead to?


  Inefficiencies for third parties not involved in the transaction
• How do competitive markets determine the allocation of goods?


  Through the interactions of buyers and sellers
• What happens at market equilibrium regarding total surplus?


  Total surplus is maximized
• What is a market failure?


  The inability to allocate resources efficiently
• Which of the following is an example of market power?


  A single seller controlling prices
• What does 'willingness to pay (WTP)' signify?


  The maximum price buyers are willing to pay
• Which statement accurately reflects the conclusion of the chapter?


  Markets can efficiently allocate resources in the absence of market failures
• What do benevolent social planners aim to do?


  Maximize economic well-being for all in society
• According to Adam Smith, what does the "invisible hand" refer to?


  Self-interest leading to societal benefits
• What is elasticity in economics?


  A measure of responsiveness to changes in price
• What is the formula for price elasticity of demand?

  % change in quantity demanded/% change in price
• If the price elasticity of demand is greater than 1, what does it indicate?

  Elastic demand
• What happens to total revenue when demand is inelastic and price increases?

  Total revenue increases
• Which factor increases the price elasticity of demand?


  Availability of close substitutes
• What is the midpoint method used for?


  Calculating percentage changes in price and quantity
• If the income elasticity of demand is negative, how is the good classified?


  Inferior good
• What does a cross-price elasticity greater than 0 indicate?


  Goods are substitutes
• If the price of insulin rises and demand is inelastic, what happens to total expenditure on insulin?

  It increases
• What characterizes a perfectly inelastic demand curve?


  It is vertical
• If demand is unit elastic when price changes, what happens to total revenue?

  It remains unchanged
• Which type of goods tends to have more elastic demand?


  Luxuries
• What does a perfectly elastic supply curve look like?


  Horizontal
• If the quantity supplied changes very little in response to large price changes, how is supply classified?


  Inelastic
• What is the implication of a high cross-price elasticity between two goods?


  They are strong substitutes
• What happens to demand for cigarettes if a government places a high tax on them?

  Demand may not decrease much if it is inelastic
• Which of the following is true about supply elasticity in the long run?


  It is generally more elastic
• Inelastic demand is characterized by what?


  Quantity demanded changing little with price changes
• If the price of a good increases and total revenue decreases, what can be inferred about demand?


  Demand is elastic
• Which scenario best illustrates a good with elastic supply?


  Fresh produce that can be grown in many different locations