AP Micro 7 by Savannah Julius

Quizlet

8juliuss — 2017-11-15 04:15:19 UTC

https://quizlet.com/_41aldw

Frequent Errors

8juliuss — 2017-11-15 04:15:36 UTC

https://docs.google.com/document/d/1Jsx7e-Yux-4RqapPOcdlUNjRtapf7PV0ffjmOjlKEq8/edit

study of how the allocation of resources affects economic well-being

8juliuss — 2017-11-15 04:16:07 UTC

Willingness to pay

8juliuss — 2017-11-15 04:16:52 UTC

if P < willingness... BUY IT
if P > willingness... DON'T BUT IT

most willing buyers put the highest value on the good

8juliuss — 2017-11-15 04:17:31 UTC

free markets allocate supply of goods to buyers who value them most

Using Demand Curve to Measure Consumer Surplus

8juliuss — 2017-11-15 04:17:59 UTC

demand schedule/curve derived from willingness to pay

Area above price and below demand curve IS consumer surplus

8juliuss — 2017-11-15 04:18:27 UTC

How a lower price raises consumer surplus

8juliuss — 2017-11-15 04:19:41 UTC

a decrease in price increases consumer surplus --> the triangle grows

Why?
1. buyers already in the market gain consumer surplus by paying less
2. new buyers enter the market enticed by lower price

What does consumer surplus measure

8juliuss — 2017-11-15 04:22:02 UTC

CS is a good measure of economic well being for rational buyers

cost

8juliuss — 2017-11-15 04:22:38 UTC

cost includes opportunity cost!

if P < cost... DON'T SELL IT
if P > cost... SELL IT

most willing sellers have the lowest costs

8juliuss — 2017-11-15 04:23:18 UTC

free markets allocate goods demanded to sellers who have the lowest costs

Using Supply Curve to Measure Producer Surplus

8juliuss — 2017-11-15 04:24:12 UTC

supply schedule/curve derived from costs

Area below price and above supply curve IS producer surplus

How a higher price raises producer surplus

8juliuss — 2017-11-15 04:27:39 UTC

an increase in price increases producer surplus --> the triangle grows

Why?
1. sellers already in market gain producer surplus by charging more
2. new sellers enter market enticed by profts

Consumer and Producer Surplus are used to study economic welfare of buyers and sellers

8juliuss — 2017-11-15 04:29:35 UTC

total surplus

8juliuss — 2017-11-15 04:29:55 UTC

sum of CS and PS

CS = benefit the buyers receive
PS = benefit sellers receive

total surplus = value to buyers - cost to sellers

Efficiency

8juliuss — 2017-11-15 04:30:39 UTC

(size of the pie)

MAXIMIZE TOTAL SURPLUS @ equilibrium

Equality

8juliuss — 2017-11-15 04:31:12 UTC

(how the pie is cut)

total area between supply and demand curves up to the point of equilibrium represents total surplus

8juliuss — 2017-11-15 04:39:48 UTC

Market Outcomes

8juliuss — 2017-11-15 04:40:55 UTC

1. free markets allocate supply of goods to buyers who value them most highly
2. free markets allocate goods demanded to sellers who can produce them and the lowest cost
3. free markets produce the quantity of goods that maximize the sum of producer and consumer surplus (aka total surplus)

At any quantity below equilibrium, the value to the marginal buyer is greater than the cost to the marginal seller

8juliuss — 2017-11-15 04:42:13 UTC

any Q below E, value to buyer > cost to seller

an increase in quantity would increase total surplus

At any quantity above equilibrium, the value to the marginal buyer is less than the cost to the marginal seller

8juliuss — 2017-11-15 04:43:17 UTC

any Q above E, value to buyer < cost to seller

a decrease in quantity would increase total surplus