Deck 7: Consumers, Producers and the Efficiency of Markets

Question 1

A supply curve provides a graphical measure of a producer's true willingness to sell.

Answer 1

True

Question 2

In a competitive market, sales go to those producers who are willing to supply the product with the best after-sales service.

Answer 2

False

Question 3

Welfare economics is the study of the welfare system.

Answer 3

False

Question 4

Producer surplus is the amount a seller is paid minus the cost of production.

Question 5

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

Question 6

In all markets consumer surplus measures the economic wellbeing in that market.

Question 7

Information regarding the consumer's willingness to pay can be derived from the demand curve.

Question 8

When a good is purchased, the difference between what a consumer is willing to pay and what they actually have to pay is consumer surplus.

Question 9

Lee can sell coffee at $3 per cup.The market equilibrium price of coffee is $3.50.Suppose Lee sells 100 cups of coffee.The producer surplus captured by Lee is $100.

Question 10

Each seller of a product is willing to sell as long as the price he or she can receive is less than the opportunity cost of producing the product.

Question 11

The highest price a buyer is prepared to spend on a good, is that buyer's willingness to pay.

Question 12

As a general rule, a consumer's willingness to pay is never greater than twice the product's price.

Question 13

For producers, the willingness to sell is equivalent to the marginal cost of the product.

Question 14

To measure the total consumer surplus in a market, the area above the demand curve is added to the area below the price.

Question 15

For any given quantity, the price on a supply curve represents the marginal buyer's willingness to pay.

Question 16

The height of the demand curve measures the value buyers place on the good, as measured by their willingness to pay for it.

Question 17

If a consumer is not willing to purchase a product, her willingness to pay must be below the market price.

Question 18

When the market price of a good falls, consumer surplus increases because (1) the consumer surplus received by existing buyers becomes larger and (2) more buyers enter the market at the lower price.

Question 19

Suppose Jess can sell fruit smoothies for $5.The market price of fruit smoothies is $4.50.If Jess decided to produce 100 smoothies, her producer surplus would be positive $50.

Question 20

Suppose a market clears and this generates an equilibrium price and quantity.An important outcome of this equilibrium is that it maximises the total benefits to both buyers and sellers.

Question 21

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

Question 22

Jean wants to sell her camera.Greg offers her $250.Lee offers her $300.We can say for sure that she will sell it to Lee, as he has offered the highest price.

Question 23

Producer surplus measures the cost to sellers of participating in a market.

Question 24

Total surplus in a market is consumer surplus plus firm profit.

Question 25

At all quantity levels the price given by the supply curve shows the cost of the lowest cost seller.

Question 26

Many economists believe that a market in human organs would lead to both an efficient allocation and fair distribution of organs.

Question 27

A perfectly competitive free market will maximise total surplus.

Question 28

If all sellers in the market have an identical willingness to sell, then producer surplus will be zero.

Question 29

Total surplus is the area under the demand curve up to the equilibrium quantity, minus the cost to producers.

Question 30

An allocation of resources that maximises total surplus is said to be equitable.

Question 31

Laissez-faire is a French expression that literally means 'let the market fare well'.

Question 32

Total surplus = Value to buyers - Costs to sellers.

Question 33

Efficiency is related to the size of the economic pie, whereas equity is related to how the pie gets sliced and distributed.

Question 34

Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs.

Question 35

The less elastic demand is, the higher the consumer surplus ceteris paribus.

Question 36

In a perfectly competitive market, consumer surplus and producer surplus are equal.

Question 37

The tools of consumer surplus and producer surplus enables us to determine whether free-market allocation of resources is desirable.

Question 38

Even though participants in the economy are motivated by self-interest, the 'invisible hand' of the marketplace guides this self-interest into promoting general economic wellbeing.

Question 39

Total surplus in a market can be measured as the area below the supply curve and the area above the demand curve.

Question 40

The producer surplus in a market is the area above the price plus the area below the demand curve.

Question 41

Gene buys a new medium-format camera for $1000.He receives consumer surplus of $20 on his purchase.Gene's willingness to pay is:

A)$20
B)$1000
C)$1020
D)$980

Question 42

Market failure refers to firms that go bankrupt because they do not produce the goods and services that consumers want.

Question 43

Public policy can improve market efficiency when there are instances of market failure.

Question 44

Lee is willing and able to pay $250 for an iPhone but is able to buy it for $199.Lee's consumer surplus is:

A)$0
B)$51
C)$199
D)$250

Question 45

A consumer's willingness to pay measures:

A)the cost of a good to the buyer
B)how much a buyer values a good
C)how much a buyer has to pay to receive a good
D)how much a seller receives from the sale of a good

Question 46

Ticket scalping leads to a reduction in economic efficiency and therefore to a reduction in economic wellbeing.

Question 47

In order for market outcomes to maximise the total benefits to buyers and sellers, the markets must be perfectly competitive.

Question 48

Economists generally believe that although there may be advantages to society from ticket scalping, the costs to society of this activity outweigh the benefits.

Question 49

Legalising ticket scalping would make everyone worse off.

Question 50

If Brock is willing to pay $800 for a new suit but is able to buy the suit for $450, his consumer surplus is:

A)$350
B)$450
C)$800
D)$1200

Question 51

Amy buys a new dog for $1500.She receives consumer surplus of $300 on her purchase.Her willingness to pay is:

A)$1500
B)$300
C)$1200
D)$1800

Question 52

A group of people are bidding on an internet auction for a used car.Each bidder will not bid more than a maximum amount that is unique to them.This maximum is called:

A)a strategic price
B)willingness to pay
C)consumer surplus
D)price elasticity of demand

Question 53

Michele is willing to pay $12 to see St Trinians for the fourth time.She finds a theatre showing St Trinians for $12.00.Michele's consumer surplus is:

A)$0
B)$12
C)$8
D)$9

Question 54

Caitlin would be willing to pay $120 to see The Lion King musical but buys a ticket for only $40.Caitlin values the performance at:

A)$40
B)$0
C)$120
D)$80

Question 55

Restrictions against ticket scalping actually drive up the cost of many tickets.

Question 56

Pollution and other externalities, while bothersome, do not interfere with efficiency.

Question 57

A consumer's willingness to pay is:

A)always equal to the market price
B)the maximum amount he or she is prepared to pay for a good
C)the average amount he or she is prepared to pay for a good
D)always more than the market price

Question 58

Sharon is bidding on a new camera on an internet auction.She values the camera at $700 and wins the auction with a bid of $650, therefore:

A)Sharon's willingness to pay is $700 and her consumer surplus is 0
B)Sharon's willingness to pay is $700 and her consumer surplus is $50
C)Sharon's willingness to pay is $650 and her consumer surplus is $50
D)Sharon's willingness to pay is $650 and her consumer surplus is $0

Question 59

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Question 60

Willingness to pay measures the:

A)amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
B)amount a seller actually receives for a good minus the minimum amount the seller is willing to accept
C)maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept
D)maximum amount that a buyer will pay for a good

Question 61

A demand curve reflects each of the following EXCEPT the:

A)ability of buyers to obtain the quantity they desire
B)willingness to pay of all buyers in the market
C)value each buyer in the market places on the good
D)highest price buyers are willing to pay for each quantity

Question 62

The area below a demand curve and above the price measures:

A)willingness to pay
B)total surplus
C)consumer surplus
D)producer surplus

Question 63

NARRBEGIN: 7-2
Graph 7-2
Refer to Graph 7-2.When the price is P₁, consumer surplus is:

A)A
B)A + B
C)A + B + C
D)A + B + D

Question 64

Suppose hail storms damage vineyards in South Australia.The supply of grapes to local winemakers declines.What happens to consumer surplus in the market for South Australian wine?

A)it increases
B)there is no change to the consumer surplus
C)it decreases
D)the overall effect is ambiguous as consumer surplus could rise or fall

Question 65

NARRBEGIN: 7-1
Graph 7-1
Refer to Graph 7-1.What area represents producer surplus when the price is P₁?

A)A
B)B
C)C
D)D

Question 66

If you pay a price exactly equal to your willingness to pay, then:

A)your willingness to pay is less than your consumer surplus
B).your consumer surplus is negative
C)you have no consumer surplus
D)you place little value on the good

Question 67

NARRBEGIN: 7-1
Graph 7-1
Refer to Graph 7-1.What area represents total surplus in the market when the price is P₁?

A)A + B
B)B + C
C)C + D
D)A + B + C + D

Question 68

Amy buys a new computer for her studies for $1500.She receives consumer surplus of $250 from the purchase.How much does Amy value her computer?

A)$250
B)$1500
C)$1250
D)$1750

Question 69

Cameron visits a sporting goods store to buy a new set of golf clubs.He has willing to pay $950 for the clubs but buys them on sale for $425.Cameron's consumer surplus from the purchase is:

A)$425
B)$525
C)$950
D)$1375

Question 70

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z. $\begin{array}{|c|c|}\hline \text { Buyer } & \text { Willingness to pay ( } \$ \text { ) } \\\hline \text { Cassie } & 15.00 \\\hline \text { Jamie } & 11.00 \\\hline \text { John } & 9.50 \\\hline \text { Jeremy } & 6.00 \\\hline \text { Sarah } & 4.50 \\\hline\end{array}$

-Refer to Table 7-1.If the price of good Z is $9.99, who will not purchase the good?

A)Jeremy and Sarah
B)John, Jeremy and Sarah
C)Cassie, Jamie and John
D)Cassie and Jamie

Question 71

Gayle decides that she would pay as much as $900 for a new laptop computer.She buys the computer and realises a consumer surplus of $600.How much did Gayle pay for her computer?

A)$900
B)$600
C)$1500
D)$300

Question 72

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z. $\begin{array}{|c|c|}\hline \text { Buyer } & \text { Willingness to pay ( } \$ \text { ) } \\\hline \text { Cassie } & 15.00 \\\hline \text { Jamie } & 11.00 \\\hline \text { John } & 9.50 \\\hline \text { Jeremy } & 6.00 \\\hline \text { Sarah } & 4.50 \\\hline\end{array}$

-Refer to Table 7-1.If the market price is $6.00, the consumer surplus in the market will be:

A)$1.50
B)$17.50
C)$6.00
D)$0

Question 73

The cost of producing digital cameras decreases.As a result, the consumer surplus associated with digital cameras:

A)decreases
B)increases
C)doesn't change
D)could increase or decrease but the overall effect is ambiguous

Question 74

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z. $\begin{array}{|c|c|}\hline \text { Buyer } & \text { Willingness to pay ( } \$ \text { ) } \\\hline \text { Cassie } & 15.00 \\\hline \text { Jamie } & 11.00 \\\hline \text { John } & 9.50 \\\hline \text { Jeremy } & 6.00 \\\hline \text { Sarah } & 4.50 \\\hline\end{array}$

-Refer to Table 7-1.Which of the following is NOT true?

A)the table is the demand schedule for good Z
B)the demand schedule represented by the table shows the willingness to pay of the marginal buyer
C)at a price of $8.00, total consumer surplus in the market will be $11.50
D)when the price is $5.50, each person will have a positive consumer surplus

Question 75

Consumer surplus equals the:

A)value to buyers less the amount paid by buyers
B)amount received by sellers less the costs of sellers
C)value to buyers plus the amount paid by buyers
D)amount received by sellers plus the costs of sellers

Question 76

Other things being equal, if the price of a good falls, the consumer surplus:

A)decreases
B)increases
C)is unchanged
D)may increase, decrease or remain unchanged

Question 77

NARRBEGIN: 7-1
Graph 7-1
Refer to Graph 7-1.What area represents consumer surplus when the price is P₁?

A)A
B)B
C)C
D)D

Question 78

Economists generally agree that the goal in developing the concept of consumer surplus is to:

A)make positive judgments about the desirability of market outcomes
B)make normative judgments about the desirability of market outcomes
C)measure the profit of firms producing the good
D)assess the forgone value when the price is too high

Question 79

Consumer surplus is the:

A)quantity of a good consumers get free
B)amount a consumer has to pay less the amount the consumer was willing to pay
C)amount a consumer is willing to pay less the amount the consumer actually pays
D)total value of a good to a consumer

Question 80

If the cost of producing automobiles increases, consumer surplus will:

A)increase
B)decrease
C)remain constant
D)increase, then decrease