Deck 7: Consumers, producers, and the Efficiency of Markets

Question 1

When a buyer's willingness to pay for a good is equal to the price of the good,

A)the buyer's consumer surplus for that good is maximized.
B)the buyer will buy as much of the good as the buyer's budget allows.
C)the price of the good exceeds the value that the buyer places on the good.
D)the buyer is indifferent between buying the good and not buying it.

Answer 1

D

Question 2

Which of the Ten Principles of Economics does welfare economics explain more fully?

A)The cost of something is what you give up to get it.
B)Markets are usually a good way to organize economic activity.
C)Trade can make everyone better off.
D)A country's standard of living depends on its ability to produce goods and services.

Answer 2

B

Question 3

Brock is willing to pay $400 for a new suit,but he is able to buy the suit for $350.His consumer surplus is

A)$50.
B)$150.
C)$350.
D)$400.

Answer 3

A

Question 4

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good,then for that consumer,consumer surplus amounts to

A)$4.
B)$16.
C)$20.
D)$36.

Question 5

If a consumer places a value of $15 on a particular good and if the price of the good is $17,then

A)the consumer has consumer surplus of $2 if he or she buys the good.
B)the consumer does not purchase the good.
C)the market is not a competitive market.
D)there is going to be downward pressure on the price of the good.

Question 6

One of the basic principles of economics is that markets are usually a good way to organize economic activity.This principle is explained by the study of

A)factor markets.
B)energy markets.
C)welfare economics.
D)labor economics.

Question 7

Willingness to pay

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

Question 8

Positive analysis refers to what

A)is.
B)should be.
C)will be.
D)used to be.

Question 9

Suppose Larry,Moe and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie.Each has in mind a maximum amount that he will bid.This maximum is called

A)a resistance price.
B)willingness to pay.
C)consumer surplus.
D)producer surplus.

Question 10

A consumer's willingness to pay directly measures

A)the extent to which advertising and other external forces have influenced the consumer's decisions regarding his or her purchases of goods and services.
B)the cost of a good to the buyer.
C)how much a buyer values a good.
D)consumer surplus.

Question 11

The study of how the allocation of resources affects economic well-being is called

A)consumer economics.
B)macroeconomics.
C)willingness-to-pay economics.
D)welfare economics.

Question 12

In which of the following circumstances would a buyer be indifferent about buying a good?

A)The amount of consumer surplus the buyer would experience as a result of buying the good is zero.
B)The price of the good is equal to the buyer's willingness to pay for the good.
C)The price of the good is equal to the value the buyer places on the good.
D)All of the above are correct.

Question 13

Welfare economics is the study of

A)how the allocation of resources affects economic well-being.
B)how technology is best put to use in the production of goods and services.
C)government welfare programs for needy people.
D)taxes and subsidies.

Question 14

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

A)maximizes total revenue for firms and maximizes the quantity supplied of the product.
B)maximizes the combined welfare of buyers and sellers.
C)minimizes costs and maximizes profits of sellers.
D)minimizes the level of welfare payments to those who no longer live below the poverty line.

Question 15

Marjorie is willing to pay $68 for a pair of shoes for a formal dance.She finds a pair at her favorite outlet shoe store for $48.Marjorie's consumer surplus is

A)$10.
B)$20.
C)$48.
D)$68.

Question 16

Welfare economics is the study of

A)the well-being of less fortunate people.
B)welfare programs in the United States.
C)the effect of income redistribution on work effort.
D)how the allocation of resources affects economic well-being.

Question 17

Normative analysis refers to what

A)is.
B)was.
C)will be.
D)ought to be.

Question 18

Consumer surplus

A)is the amount of a good that a consumer can buy at a price below equilibrium price.
B)is the difference between the amount that a consumer actually pays for a good and the amount that the consumer is willing to pay for the good.
C)is the number of consumers who are excluded from a market because of scarcity.
D)measures how much a buyer values a good.

Question 19

Consumer surplus is

A)the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
B)the amount a buyer is willing to pay for a good minus the cost of producing the good.
C)the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.
D)a buyer's willingness to pay for a good plus the price of the good.

Question 20

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

A)maximizes costs of the seller.
B)maximizes tax revenue for the government.
C)maximizes the combined welfare of buyers and sellers.
D)minimizes the expenditure of buyers.

Question 21

Jeff decides that he would pay as much as $3,000 for a new laptop computer.He buys the computer and realizes consumer surplus of $700.How much did Jeff pay for his computer?

A)$700
B)$2,300
C)$3,000
D)$3,700

Question 22

Suppose Lauren,Leslie and Lydia all purchase bulletin boards for their rooms for $15 each.Lauren's willingness to pay was $35,Leslie's willingness to pay was $25,and Lydia's willingness to pay was $30.Total consumer surplus for these three would be

A)$15.
B)$30.
C)$45.
D)$90.

Question 23

Denise values a stainless steel dishwasher for her new house at $500.The actual price of the dishwasher is $650.Denise

A)buys the dishwasher and on her purchase she experiences a consumer surplus of $150.
B)buys the dishwasher and on her purchase she experiences a consumer surplus of $-150.
C)does not buy the dishwasher and on her purchase she experiences a consumer surplus of $150 on her non-purchase.
D)does not buy the dishwasher and on her purchase she experiences a consumer surplus of $0 on her non-purchase.

Question 24

Janine would be willing to pay $50 to see Les Misérables,but she buys a ticket for only $30.Janine values the performance at

A)$20.
B)$30.
C)$50.
D)$80.

Question 25

Suppose there is an early freeze in California that reduces the size of the lemon crop.What happens to consumer surplus in the market for lemons?

A)It increases.
B)It decreases.
C)It is not affected by this change in market forces.
D)We would have to know whether the demand for lemons is elastic or inelastic to make this determination.

Question 26

In a market,the marginal buyer is the buyer

A)whose willingness to pay is higher than that of all other buyers and potential buyers.
B)whose willingness to pay is lower than that of all other buyers and potential buyers.
C)who is willing to buy exactly one unit of the good.
D)who would be the first to leave the market if the price were any higher.

Question 27

If the price a consumer pays for a product is equal to a consumer's willingness to pay,then the consumer surplus relevant to that purchase is

A)zero.
B)negative and the consumer would not purchase the product.
C)positive and the consumer would purchase the product.
D)There is not enough information given to answer this question.

Question 28

Table 7-1

Refer to Table 7-1.If the table represents the willingness to pay of four buyers and the price of the product is $30,then their total consumer surplus is

A)$-10.
B)$-6.
C)$20.
D)$30.

Question 29

Suppose Katie,Kendra,and Kristen each purchase a particular type of cell phone at a price of $80.Katie's willingness to pay was $100,Kendras's willingness to pay was $95,and Kristen's willingness to pay was $80.Which of the following statements is correct?

A)For the three individuals together, consumer surplus amounts to $35.
B)Having bought the cell phone, Kristen is better off than she would have been had she not bought it.
C)Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer.
D)The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.

Question 30

Suppose Bart,Benjamin,and Brent each purchase a particular type of electric pencil sharpener at a price of $20.Bart's willingness to pay was $22,Benjamin's willingness to pay was $25,and Brent's willingness to pay was $30.Which of the following statements is correct?

A)Had the price of the pencil sharpener been $26 rather than $20, only Brent would have been a buyer.
B)Brent's consumer surplus is the smallest of the three individual consumer surpluses.
C)For the three individuals together, consumer surplus amounts to $60.
D)The fact that all three individuals paid $20 for the same type of pencil sharpener indicates that each one placed the same value on that pencil sharpener.

Question 31

Consumer surplus is the

A)amount of a good consumers get without paying anything for it.
B)amount a consumer pays minus the amount the consumer is willing to pay.
C)amount a consumer is willing to pay minus the amount the consumer actually pays.
D)value of a good to a consumer.

Question 32

Ray buys a new tractor for $118,000.He receives consumer surplus of $13,000 on his purchase.Ray's willingness to pay is

A)$13,000.
B)$105,000.
C)$118,000.
D)$131,000.

Question 33

Cameron visits a sporting goods store to buy a new set of golf clubs.He is willing to pay $750 for the clubs,but buys them on sale for $575.Cameron's consumer surplus from the purchase is

A)$175.
B)$575.
C)$750.
D)$1,325.

Question 34

Noah drinks Dr.Pepper.He can buy as many cans of Dr.Pepper as he wishes at a price of $0.50 per can.On a particular day,he is willing to pay $0.95 for the first can,$0.80 for the second can,$0.60 for the third can,and $0.40 for the fourth can.Assume Noah is rational in deciding how many cans to buy.His consumer surplus is

A)$0.50.
B)$0.85.
C)$1.05.
D)$1.20.

Question 35

Chad is willing to pay $5.00 to get his first cup of morning latté.He buys a cup from a vendor selling latté for $3.75 per cup.Chad's consumer surplus is

A)$8.75.
B)$5.00.
C)$3.75.
D)$1.25.

Question 36

Chad is willing to pay $5.00 to get his first cup of morning latté;he is willing to pay $4.50 for a second cup.He buys his first cup from a vendor selling latté for $3.75 per cup.He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup.Chad buys a second cup.Which of the following statements is correct?

A)Chad's willingness to pay for his second cup of latté was smaller than his willingness to pay for his first cup of latté.
B)Chad's consumer surplus on his second cup of latté was larger than his consumer surplus on his first cup of latté.
C)Chad is irrational in that he is willing to pay a different price for his second cup of latté than what he is willing to pay for his first cup of latté.
D)Chad places a higher value on his second cup of latté than on his first cup of latté.

Question 37

Shannon buys a new CD player for her car for $135.She receives consumer surplus of $25 on her purchase if her willingness to pay is

A)$25.
B)$110.
C)$135.
D)$160.

Question 38

Table 7-1

Refer to Table 7-1.If the table represents the willingness to pay of four buyers and the price of the product is $15,then who would be willing to purchase the product?

A)Mike
B)Mike and Sandy
C)Mike, Sandy, and Jonathan
D)Mike, Sandy, Jonathan, and Haley

Question 39

Denise values a stainless steel dishwasher for her new house at $500,but she succeeds in buying one for $350.Denise's willingness to pay is

A)$150.
B)$350.
C)$500.
D)$850.

Question 40

Table 7-1

Refer to Table 7-1.If the table represents the willingness to pay of four buyers and the price of the product is $18,then their total consumer surplus is

A)$38.
B)$42.
C)$46.
D)$72.

Question 41

Consumer surplus is equal to the

A)Value to buyers - Amount paid by buyers.
B)Amount paid by buyers - Costs of sellers.
C)Value to buyers - Costs of sellers.
D)Value to buyers - Willingness to pay of buyers.

Question 42

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75?

A)Alex
B)Barb
C)Carlos
D)Alex and Barb experience the same gain in consumer surplus, and Carlos's gain is zero.

Question 43

On a graph,consumer surplus is the area

A)between the demand and supply curves.
B)below the demand curve and above price.
C)below the price and above the supply curve.
D)below the demand curve and to the right of equilibrium price.

Question 44

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.
Table 7-2

Refer to Table 7-2.If the market price is $3.80,

A)David's consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50.
B)Megan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80.
C)David, Laura, and Megan will be the only buyers of Vanilla Coke.
D)the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal.

Question 45

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.Which of the following statements is correct?

A)Neither Barb's consumer surplus nor Carlos's consumer surplus can exceed Alex's consumer surplus, for any price of an orange.
B)All three individuals will buy at least one orange only if the price of an orange is less than $0.25.
C)If the price of an orange is $0.60, total consumer surplus is $4.90.
D)All of the above are correct.

Question 46

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.The market quantity of oranges demanded per day is exactly 5 if the price of an orange,P,satisfies

A)$1.00 < P < $1.50.
B)$0.80 < P < $1.50.
C)$0.80 < P < $1.00.
D)$0.75 < P < $0.80.

Question 47

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.If the market price of an orange is $0.70,the market quantity of oranges demanded per day is

A)5.
B)6.
C)7.
D)9.

Question 48

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.
Table 7-2

Refer to Table 7-2.Which of the following is not true?

A)At a price of $9.00, no buyer is willing to purchase Vanilla Coke.
B)At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying one.
C)At a price of $4.00, total consumer surplus in the market will be $9.00.
D)All of the above are correct.

Question 49

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.
Table 7-2

Refer to Table 7-2.If the market price is $5.50,the consumer surplus in the market will be

A)$3.00.
B)$4.50.
C)$15.50.
D)$21.00.

Question 50

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.If the market price of an orange is $1.20,the market quantity of oranges demanded per day is

A)1.
B)2.
C)3.
D)4.

Question 51

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.If the market price of an orange increases from $0.60 to $1.05,total consumer surplus

A)increases by $2.90.
B)decreases by $2.25.
C)decreases by $2.70.
D)decreases by $3.85.

Question 52

A demand curve reflects each of the following except the

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

Question 53

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.If the market price of an orange is $0.40,

A)6 oranges are demanded per day and total consumer surplus amounts to $4.45.
B)6 oranges are demanded per day and total consumer surplus amounts to $5.10.
C)7 oranges are demanded per day and total consumer surplus amounts to $5.35.
D)7 oranges are demanded per day and total consumer surplus amounts to $5.50.

Question 54

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.Who experiences the largest loss of consumer surplus when the price of an orange increases from $0.70 to $1.40?

A)Alex
B)Barb
C)Carlos
D)All three individuals experience the same loss of consumer surplus.

Question 55

Suppose your own demand curve for tomatoes slopes downward.Suppose also that,for the last tomato you bought this week,you paid a price exactly equal to your willingness to pay.Then

A)you should buy more tomatoes before the end of the week.
B)you already have bought too many tomatoes this week.
C)your consumer surplus on the last tomato you bought is zero.
D)your consumer surplus on all of the tomatoes you have bought this week is zero.

Question 56

Table 7-3
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Refer to Table 7-3.If the market price of an orange is $1.20,consumer surplus amounts to

A)$0.70.
B)$1.10.
C)$1.40.
D)$5.00.

Question 57

Consumer surplus in a market can be represented by the

A)area below the demand curve and above the price.
B)distance from the demand curve to the horizontal axis.
C)distance from the demand curve to the vertical axis.
D)area below the demand curve and above the horizontal axis.

Question 58

The area below a demand curve and above the price measures

A)producer surplus.
B)consumer surplus.
C)excess supply.
D)willingness to pay.

Question 59

Suppose the market demand curve for a good passes through the point (quantity demanded = 100,price = $25).If there are five buyers in the market,then

A)the marginal buyer's willingness to pay for the 100ᵗʰ unit of the good is $25.
B)the sum of the five buyers' willingness to pay for the 100ᵗʰ unit of the good is $25.
C)the average of the five buyers' willingness to pay for the 100ᵗʰ unit of the good is $25.
D)all of the five buyers are willing to pay at least $25 for the 100ᵗʰ unit of the good.

Question 60

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.
Table 7-2

Refer to Table 7-2.If the price of Vanilla Coke is $6.90,who will purchase the good?

A)all five individuals
B)Megan, Mallory and Audrey
C)David, Laura and Megan
D)David and Laura

Question 61

If the price of oak lumber increases,what happens to consumer surplus in the market for oak cabinets?

A)It increases.
B)It decreases.
C)It will not change consumer surplus; only producer surplus changes.
D)It depends on what event led to the increase in the price of oak lumber.

Question 62

Figure 7-2

Refer to Figure 7-2.Which area represents consumer surplus at a price of P₁?

A)ABD
B)ACF
C)BCDE
D)DEF

Question 63

Figure 7-1

Refer to Figure 7-1.When the price rises from P₁ to P₂,which of the following statements is not true?

A)The buyers who still buy the good are worse off because they now pay more.
B)Some buyers leave the market because they are not willing to buy the good at the higher price.
C)Buyers place a higher value on the good after the price increase.
D)Consumer surplus in the market falls.

Question 64

Figure 7-1

Refer to Figure 7-1.Area C represents

A)the decrease in consumer surplus that results from a downward-sloping demand curve.
B)consumer surplus to new consumers who enter the market when the price falls from P₂ to P₁.
C)the increase in producer surplus when quantity sold increases from Q₂ to Q₁.
D)the decrease in consumer surplus to each consumer in the market when the price increases from P₁ to P₂.

Question 65

What happens to consumer surplus if the price of a good increases?

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

Question 66

Figure 7-2

Refer to Figure 7-2.Which area represents the increase in consumer surplus when the price falls from P₁ to P₂?

A)ABD
B)ACF
C)DEF
D)BCFD

Question 67

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

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

Question 68

Figure 7-2

Refer to Figure 7-2.When the price falls from P₁ to P₂,which area represents the increase in consumer surplus to existing buyers?

A)ABD
B)ACF
C)BCED
D)DEF

Question 69

Figure 7-2

Refer to Figure 7-2.Which area represents consumer surplus at a price of P₂?

A)ABD
B)ACF
C)BCDE
D)DEF

Question 70

Figure 7-1

Refer to Figure 7-1.When the price is P₂,consumer surplus is

A)a.
B)B.
C)A + B.
D)A + B + C.

Question 71

Which of the following is not true when the price of a good or service falls?

A)Buyers who were already buying the good or service are better off.
B)Some new buyers, who are now willing to buy, enter the market.
C)The total consumer surplus in the market increases.
D)The total value of purchases before and after the price change is the same.

Question 72

When there is a technological advance in the ice cream industry,consumer surplus in that market will

A)increase.
B)decrease.
C)not change, since technology affects producers and not consumers.
D)not change, since consumers' willingness to pay is unaffected by the technological advance.

Question 73

Figure 7-2

Refer to Figure 7-2.When the price falls from P₁ to P₂,which area represents the increase in consumer surplus to new buyers entering the market?

A)ABD
B)ACF
C)BCDE
D)DEF

Question 74

When the demand for a good increases and the supply of the good remains unchanged,consumer surplus

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

Question 75

Suppose televisions are a normal good and buyers of televisions experience a decrease in income.As a result,consumer surplus in the television market

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

Question 76

Figure 7-1

Refer to Figure 7-1.When the price rises from P₁ to P₂,consumer surplus

A)increases by an amount equal to a.
B)decreases by an amount equal to B + C.
C)increases by an amount equal to B + C.
D)decreases by an amount equal to C.

Question 77

Consumer surplus

A)is a concept that helps us make normative statements about the desirability of market outcomes.
B)is represented on a graph by the area below the demand curve and above the price.
C)is a good measure of economic welfare if buyers' preferences are the primary concern.
D)All of the above are correct.

Question 78

Motor oil and gasoline are complements.If the price of motor oil increases,consumer surplus in the gasoline market

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

Question 79

If the cost of producing sofas decreases,then consumer surplus in the sofa market will

A)increase.
B)decrease.
C)remain constant.
D)increase for some buyers and decrease for other buyers.

Question 80

Figure 7-1

Refer to Figure 7-1.When the price is P₁,consumer surplus is

A)a.
B)A + B.
C)A + B + C.
D)A + B + D.