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

Question 1

Joel has a 1966 Mustang,which he sells to Susie,an avid car collector.Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car.Susie's consumer surplus is $2,000.

Answer 1

False

Question 2

Suppose there is an increase in supply that reduces market price.Consumer surplus increases because (1)consumer surplus received by existing buyers increases and (2)new buyers enter the market.

Answer 2

True

Question 3

If Darby values a soccer ball at $50,and she pays $40 for it,her consumer surplus is $10.

Answer 3

True

Question 4

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

Question 5

If the government imposes a binding price floor in a market,then the consumer surplus in that market will decrease.

Question 6

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 7

Welfare economics is the study of the welfare system.

Question 8

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

Question 9

Consumer surplus can be measured as the area between the demand curve and the supply curve.

Question 10

Consumer surplus measures the benefit to buyers of participating in a market.

Question 11

In a competitive market,sales go to those producers who are willing to supply the product at the lowest price.

Question 12

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 13

If Darby values a soccer ball at $50,and she pays $40 for it,her consumer surplus is $90.

Question 14

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

Question 15

The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.

Question 16

All else equal,an increase in supply will cause an increase in consumer surplus.

Question 17

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

Question 18

If the government imposes a binding price floor in a market,then the consumer surplus in that market will increase.

Question 19

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 20

At any quantity,the price given by the supply curve shows the cost of the lowest-cost seller.

Question 21

Connie can clean windows in large office buildings at a cost of $1 per window.The market price for window-cleaning services is $3 per window.If Connie cleans 100 windows,her producer surplus is $100.

Question 22

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 23

Total surplus = Value to buyers - Costs to sellers.

Question 24

All else equal,an increase in demand will cause an increase in producer surplus.

Question 25

Connie can clean windows in large office buildings at a cost of $1 per window.The market price for window-cleaning services is $3 per window.If Connie cleans 100 windows,her producer surplus is $200.

Question 26

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

Question 27

If producing a soccer ball costs Jake $5,and he sells it for $40,his producer surplus is $45.

Question 28

The area below the price and above the supply curve measures the producer surplus in a market.

Question 29

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

Question 30

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

Question 31

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

Question 32

The area below the demand curve and above the supply curve measures the producer surplus in a market.

Question 33

All else equal,a decrease in demand will cause an increase in producer surplus.

Question 34

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

Question 35

Producing a soccer ball costs Jake $5.He sells it to Darby for $35.Darby values the soccer ball at $50.For this transaction,the total surplus in the market is $40.

Question 36

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

Question 37

If producing a soccer ball costs Jake $5,and he sells it for $40,his producer surplus is $35.

Question 38

If the government imposes a binding price ceiling in a market,then the producer surplus in that market will increase.

Question 39

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

Question 40

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve,up to the point of equilibrium.

Question 41

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 42

Answer each of the following questions about supply and producer surplus.
a.
What is producer surplus,and how is it measured?
b.
What is the relationship between the cost to sellers and the supply curve?
c.
Other things equal,what happens to producer surplus when the price of a good rises? Illustrate your answer on a supply curve.

Question 43

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 well-being.

Question 44

Welfare economics is the study of how

A) the allocation of resources affects economic well-being.
B) a price ceiling compares to a price floor.
C) the government helps poor people.
D) a consumer's optimal choice affects her demand curve.

Question 45

Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.

Question 46

The current policy on kidney donation effectively sets a price ceiling of zero.

Question 47

Answer each of the following questions about demand and consumer surplus.
a.
What is consumer surplus,and how is it measured?
b.
What is the relationship between the demand curve and the willingness to pay?
c.
Other things equal,what happens to consumer surplus if the price of a good falls? Why? Illustrate using a demand curve.
d.
In what way does the demand curve represent the benefit consumers receive from participating in a market? In addition to the demand curve,what else must be considered to determine consumer surplus?

Question 48

If the United States legally allowed for a market in transplant organs,it is estimated that one kidney would sell for at least $100,000.

Question 49

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.

Question 50

Welfare economics is the study of

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

Question 51

Given the following equations two equations:

Show how equation (1)can be used to derive equation (2).

Question 52

Unless markets are perfectly competitive,they may fail to maximize the total benefits to buyers and sellers.

Question 53

An example of normative analysis is studying

A) how market forces produce equilibrium.
B) surpluses and shortages.
C) whether equilibrium outcomes are socially desirable.
D) income distributions.

Question 54

An example of positive analysis is studying

A) how market forces produce equilibrium.
B) whether equilibrium outcomes are fair.
C) whether equilibrium outcomes are socially desirable.
D) if income distributions are fair.

Question 55

Tammy loves donuts.The table shown reflects the value Tammy places on each donut she eats:

a.
Use this information to construct Tammy's demand curve for donuts.
b.
If the price of donuts is $0.20,how many donuts will Tammy buy?
c.
Show Tammy's consumer surplus on your graph.How much consumer surplus would she have at a price of $0.20?
d.
If the price of donuts rose to $0.40,how many donuts would she purchase now? What would happen to Tammy's consumer surplus? Show this change on your graph.

Question 56

When markets fail,public policy can potentially remedy the problem and increase economic efficiency.

Question 57

In order to conclude that markets are efficient,we assume that they are perfectly competitive.

Question 58

Market power and externalities are examples of market failures.

Question 59

Welfare economics is the study of

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

Question 60

Markets will always allocate resources efficiently.

Question 61

Welfare economics explains which of the following in the market for DVDs?

A) The government sets the price of DVDs;firms respond to the price by producing a specific level of output.
B) The government sets the quantity of DVDs;firms respond to the quantity by charging a specific price.
C) The market equilibrium price for DVDs maximizes the total welfare to DVD buyers and sellers.
D) The market equilibrium price for DVDs maximizes consumer welfare but minimizes producer welfare.

Question 62

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 63

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 64

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 65

The maximum price that a buyer will pay for a good is called the

A) cost.
B) willingness to pay.
C) equity.
D) efficiency.

Question 66

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 67

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 68

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

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

Question 69

On a graph,the area below a demand curve and above the price measures

A) producer surplus.
B) consumer surplus.
C) deadweight loss.
D) willingness to pay.

Question 70

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 71

Suppose Chris and Laura attend a charity benefit and participate in a silent auction.Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist.This maximum is called

A) deadweight loss.
B) willingness to pay.
C) consumer surplus.
D) producer surplus.

Question 72

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 73

A consumer's willingness to pay directly measures

A) the extent to which advertising and other external forces have influenced the consumer's preferences.
B) the cost of a good to the buyer.
C) how much a buyer values a good.
D) consumer surplus.

Question 74

Consumer surplus

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

Question 75

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 76

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 77

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

A) maximizes both the total revenue for firms and the quantity supplied of the product.
B) maximizes the combined welfare of buyers and sellers.
C) minimizes costs and maximizes output.
D) minimizes the level of welfare payments.

Question 78

Consumer surplus is the

A) amount of a good consumers get without paying anything.
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 79

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) Rational people think at the margin.
C) Markets are usually a good way to organize economic activity.
D) People respond to incentives.

Question 80

On a graph,consumer surplus is represented by 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.