Deck 7: Consumers, Producers and the Efficiency of Markets

Question 1

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

Answer 1

False

Question 2

The opportunity cost for a seller should only include their cash expenses on inputs.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Lee can sell coffee at $1 per cup. The market equilibrium price of coffee is $2.50. Suppose Lee sells 200 cups of coffee. The producer surplus captured by Lee is $500.

Question 5

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 6

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

Question 7

Welfare economics is the study of the welfare system.

Question 8

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 9

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

Question 10

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

Question 11

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 12

Any goods not sold in a vegetable market at the end of the day are producer surplus.

Question 13

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay.

Question 14

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

Question 15

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 16

The appropriate measure for buyers' valuation of a good is how willing they are to pay.

Question 17

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

Question 18

Consumer surplus is closely related to the demand curve for a product.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

Total surplus in a market is consumer surplus minus producer surplus.

Question 25

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 26

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

Question 27

Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost.

Question 28

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Question 29

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

Question 30

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

Question 31

If some buyers and sellers are prevented from trading, the efficient allocation will not occur.

Question 32

Jean wants to sell her camera. Greg offers her $250. Lee offers her $300. Jean decides to sell the camera to Greg because he made the first offer. This is an example of an efficient market transaction.

Question 33

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

Question 34

Consumer surplus = Price of the good.

Question 35

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

Question 36

Total surplus = Value to buyers - Costs to sellers.

Question 37

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 38

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

Question 39

Economists believe that government control of markets is most often the best way to organise economic activity because they lead to an efficient allocation of resources.

Question 40

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

Question 41

Lee is willing and able to pay $300 for a particular MP3 player but is able to buy it for $199. Lee's consumer surplus is:

A) $0
B) $101
C) $199
D) $300

Question 42

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 43

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

Question 44

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 45

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

Question 46

Sharon is bidding on a new camera on an internet auction. She values the camera at $300 and wins the auction with a bid of $300, therefore:

A) Sharon's willingness to pay is $300 and her consumer surplus is 0
B) Sharon's willingness to pay is $300 and her consumer surplus is $300
C) Sharon's willingness to pay is $150 and her consumer surplus is $150
D) Sharon's willingness to pay is $150 and her consumer surplus is $0

Question 47

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

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

Question 48

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

Question 49

Legalising ticket scalping would make everyone worse off.

Question 50

Gene buys a new medium-format camera for $20 000. He receives consumer surplus of $6000 on his purchase. Gene's willingness to pay is:

A) $6000
B) $14 000
C) $20 000
D) $26 000

Question 51

Amy buys a new dog for $150. She receives consumer surplus of $100 on her purchase. Her willingness to pay is:

A) $50
B) $100
C) $150
D) $250

Question 52

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

Question 53

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

Question 54

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 55

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

Question 56

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

Question 57

Michele is willing to pay $15 to see St Trinians for the fourth time. She finds a theatre showing St Trinians for $8.00. Michele's consumer surplus is:

A) $0
B) $7
C) $8
D) $15

Question 58

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 59

If Brock is willing to pay $500 for a new suit but is able to buy the suit for $350, his consumer surplus is:

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

Question 60

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 61

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 62

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 63

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 64

Amy buys a new computer for her studies for $1200. She receives consumer surplus of $300 from the purchase. How much does Amy value her computer?

A) $300
B) $900
C) $1200
D) $1500

Question 65

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 $525. Cameron's consumer surplus from the purchase is:

A) $225
B) $525
C) $750
D) $1275

Question 66

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z.

Refer to Table 7-1. If the price of good Z is $4.99, 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 67

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 68

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 69

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z.

Refer to Table 7-1. 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 70

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 71

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 72

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 73

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 74

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 75

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

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

Question 76

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 77

Gayle decides that she would pay as much as $3000 for a new laptop computer. She buys the computer and realises a consumer surplus of $700. How much did Gayle pay for her computer?

A) $700
B) $2300
C) $3000
D) $3700

Question 78

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 79

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z.

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 $4.00, total consumer surplus in the market will be $9.00
D) when the price is $3.50, each person will have a positive consumer surplus

Question 80

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