Deck 4: Markets and Government

Question 1

(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible consumer surplus as

A) $10,000.
B) $20,000.
C) $40,000.
D) $80,000.

Answer 1

B

Question 2

(Figure: Determining Surplus 6) Using the graph, we can calculate the maximum possible producer surplus as

A) $10,000.
B) $20,000.
C) $40,000.
D) $80,000.

Answer 2

B

Question 3

(Figure: Interpreting Surplus) In the supply/demand graph

A) consumer surplus is $50,000 and producer surplus is $100,000.
B) total market surplus is $200,000.
C) total market surplus is $50,000.
D) consumer surplus is larger than producer surplus.

Answer 3

A

Question 4

(Figure: Determining Surplus 6) According to the graph, the maximum possible total surplus is

A) $10,000.
B) $20,000.
C) $40,000.
D) $80,000.

Question 5

Yolunda finds an antique typewriter that would look perfect in her office, but the price tag is missing. She is willing to buy it as long as it's not more than $200. The store owner informs Yolunda that the price is $175. Yolunda buys the typewriter, and therefore achieved a consumer surplus of

A) $200 because that is what she was willing to pay.
B) $175, the price that she actually paid.
C) $25, the difference between what she was willing to pay and the price.
D) $0 because the typewriter was not discounted from the price the store owner quoted.

Question 6

Faisal is gathering items to donate to a local charity thrift shop, including an old backpack. As he takes the items out, his suitemate Kendrick asks if he could have the backpack. Kendrick offers Faisal one of his energy drinks (worth $6) in exchange, which Faisal happily accepts. Faisal has achieved a producer surplus of

A) $0, since he was just going to give the backpack away.
B) $6, the value of the energy drink received.
C) $3 because Faisal and Kendrick benefited equally from the $6 transaction.
D) $20 because that is what the backpack was likely worth.

Question 7

At the end of the term, Sheilagh wants to sell her economics textbook for at least $30; otherwise, she will keep it. Mikael is looking to buy a textbook because he is taking the class next term and is willing to pay at most $50. If Sheilagh agrees to sell the textbook to Mikael for $45

A) Mikael's consumer surplus is $5 and Sheilagh's producer surplus is $15.
B) Mikael's consumer surplus is $15 and Sheilagh's producer surplus is $5.
C) Mikael's consumer surplus is $50 and Sheilagh's producer surplus is $30.

Question 8

In the following graph, calculate the value of consumer surplus in this market.

A) $5
B) $75
C) $150
D) $195

Question 9

In the following graph, calculate the value of producer surplus in this market.

A) $240
B) $180
C) $90
D) $6

Question 10

Total surplus is maximized when the price is _____ the equilibrium price.

A) as low as possible below
B) slightly higher than
C) slightly lower than
D) exactly at

Question 11

One reason that deadweight loss occurs is as the result of

A) competitive forces pushing the market toward equilibrium.
B) mutually beneficial transactions not taking place between buyers and sellers.
C) an increase in total surplus in a market.
D) an efficient allocation of goods and services in the market.

Question 12

In which situation would deadweight loss be the greatest?

A) The price and quantity are at the market equilibrium.
B) Both consumer surplus and producer surplus are unchanged from their equilibrium levels.
C) The price is significantly lower than the equilibrium price, creating a transfer of producer surplus to consumers.
D) The price is slightly higher than the equilibrium, causing a small transfer of consumer surplus to producers.

Question 13

When the price of Frisbees used in the sport of ultimate rises above the equilibrium price, which situation occurs?

A) a transfer of consumer surplus to producer surplus
B) a transfer of producer surplus to consumer surplus
C) an increase in both consumer surplus and producer surplus
D) no change in consumer surplus or producer surplus

Question 14

In the following graph, if the price of a good increases from $4 to $6, the amount of deadweight loss in this market would

A) fall to $0.
B) increase by $2.
C) remain unchanged.
D) increase to $30.

Question 15

The equilibrium price of cocoa beans is $40 per bushel. Which would be a binding price ceiling?

A) $50
B) $40
C) $30
D) No price would be binding.

Question 16

When states pass laws to raise the minimum wage (price of labor), this leads to a(n) _____ in the labor market.

A) increase in consumer surplus
B) shortage
C) increase in deadweight loss
D) reduction in the equilibrium wage

Question 17

Which scenario is likely to occur when a binding price ceiling is placed on on-campus apartments?

A) an improvement in the quality of on-campus apartments
B) an increase in the quantity supplied of on-campus apartments
C) an increase in time and effort students spend searching for on-campus apartments
D) a reduction in deadweight loss as on-campus apartments are rented at lower prices

Question 18

In the following graph, if a price ceiling is set at $8, which situation would result?

A) a surplus of 20 units
B) a surplus of 40 units
C) a shortage of 20 units
D) no shortage or surplus

Question 19

In the following graph, if the price floor on wheat is $8 per bushel, the amount of surplus in this market would be _____ bushels.
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A) 0
B) 10
C) 20
D) 40

Question 20

On a remote highway in western Colorado, Brendan operates the only gas station within 80 miles of the nearest town. Because of the lack of competition, prices in this market will be _____ than in a competitive market, resulting in _____ deadweight loss.

A) higher; greater
B) higher; less
C) lower; greater
D) lower; less

Question 21

Marjorie enjoys antique shopping by visiting the estate sales of those who have passed on, where she occasionally finds a rare piece priced at a bargain because the estate's beneficiaries were not aware of its high value. A market failure occurs in this situation due to

A) a lack of competition.
B) existence of external benefits.
C) existence of public goods.
D) a mismatch of information.

Question 22

Kathryn spends hours each day tending to her gardens and landscaping, and sweeping leaves from her cul-de-sac. Prospective homebuyers increase their desire to live on this street, increasing all home values on the street. Kathryn's neighbors are benefiting from a(n)

A) public good.
B) external benefit.
C) marginal benefit.
D) mismatch of information.

Question 23

Reducing global carbon emissions is difficult because of the public goods nature of climate change policy that exhibits

A) rivalry and excludability.
B) rivalry and nonexcludability.
C) nonrivalry and excludability.
D) nonrivalry and nonexcludability.

Question 24

Because of the high cost of health insurance, some young adults choose not to buy insurance because they feel they are not likely to become ill. This potentially raises health care costs should uninsured persons become ill and be unable to pay their bills. This is an example of

A) free-ridership.
B) asymmetric information.
C) external benefits.
D) nonrivalry in services.