Chapter 5

Question 1

What happens when supply and demand shift simultaneously

Answer 1

Don’t graph them

one component of equilibrium will be indeterminate

Question 2

What is allocation efficiency?

Answer 2

when resources are being used where they are most highly valued

Question 3

What is consumer surplus?

Answer 3

the difference between the total value a consumer places on a particular quantity of a good and the amount actually paid

Question 4

What happens to consumer surplus when prices rise? When prices fall?

Answer 4

Consumer surplus falls when price rises
Consumer surplus rises when price falls
in a graph: consumer surplus is the area under Demand and above price