Multiple Choice
Which term describes the practice of lowering the price of an item to encourage more consumers to purchase it?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
The term "value added" for a firm is best defined as which of the following?
A
The difference between a firm's total revenue and the cost of intermediate goods and services purchased from other firms.
B
The profit earned by the firm after all costs, including opportunity costs, are subtracted.
C
The total market value of all goods and services produced by the firm.
D
The total amount of consumer surplus generated by the firm's sales.
Verified step by step guidance1
Understand that 'value added' measures the additional value created by a firm in the production process.
Recognize that value added is calculated by taking the firm's total revenue from sales and subtracting the cost of intermediate goods and services purchased from other firms.
Note that intermediate goods are inputs that are used up in the production process and are not final products sold to consumers.
Distinguish value added from profit, which accounts for all costs including opportunity costs, and from total market value, which does not subtract intermediate inputs.
Conclude that value added represents the net contribution of the firm to the economy, reflecting the value it adds beyond the cost of purchased inputs.
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