Question 1

The annual Great Sofa Round-up is a collaborative event between Colorado State University and the City of Fort Collins aims to help students and neighbors get rid of unwanted furniture, while giving people in need access to inexpensive sofas. Suppose on the day of the Round-up, your friends take their couches to the main parking lot on campus where the Round-up is held. Raj will not sell his couch for less than $30, Emily will not sell her couch for less than $50, Nara will not sell her couch for less than $20, Sergio just wants to get rid of his couch and he is willing to give it away for free. At the Round-up, potential buyers think that all the couches available are basically the same and they are willing to buy a couch for $50. What is the value of the market producer surplus?

Accepted Answer

A)  $100 
B)  $200 
C)  $120 
D)  $50

Question 2

In the market for CDs, the producer surplus will decrease if ________.

Accepted Answer

A)  the supply of CDs increases 
B)  the price of a CD decreases 
C)  the marginal cost of a CD decreases 
D)  the price of a CD increases

Question 3

-The figure above shows Clara's demand for CDs. At a price of $20 for a CD, the value of Clara's total consumer surplus for all the CDs she buys is

Accepted Answer

A)  $40. 
B)  $30. 
C)  $20. 
D)  $4.

Question 4

Colorado State University allocates 10,000 tickets for each home game to students at no cost. Students are required to stand in line and prove they are a full time student to receive a free ticket. Community members can purchase season tickets or tickets to an individual game. How are football tickets allocated to community members?

Accepted Answer

A)  market price 
B)  command 
C)  first-come, first-served 
D)  personal characteristics

Question 5

Suppose a country produces only bikes and clothing. The country achieves an efficient allocation of resources when

Accepted Answer

A)  it can't produce any more bikes unless it gives up clothing. 
B)  it produces equal amount of bikes and clothes. 
C)  the marginal social benefit of producing a bike equals the marginal social cost of producing a bike. 
D)  the prices charged for the goods are as low as possible.

Question 6

-In the above figure, the second ton of wheat would be produced even though the producer surplus on it is zero if the price per ton of wheat was

Accepted Answer

A)  $25. 
B)  $50. 
C)  $75. 
D)  $100.

Question 7

Often politicians assert that a price, such as the price of gasoline or the rent for an apartment, is too high and that it is unfair for these prices to be so high. If these products are traded in competitive markets, what fairness rule are politicians using? Why?

Accepted Answer

The answer of Often politicians assert that a price, such...

Question 8

At the current level of output, the marginal social benefit of pizza exceeds the marginal social cost of pizza. Compared to the allocatively efficient quantity, we are producing too ________ pizza and too ________ of other goods.

Accepted Answer

A)  much; little 
B)  much; much 
C)  little; little 
D)  little; much

Question 9

-Jason wants to hire Maria to tutor him in economics. Jason is willing to pay $30 for the first hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. Maria has an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third, $15 for the fourth, and $18 for the fifth. The initial equilibrium price for tutoring is $15 an hour and hence Maria tutors Jason for 4 hours. Now, Maria realizes that she is the only economics tutor because all the other tutors have graduated. Because she is the only tutor, she has a monopoly and, as a monopolist, Maria decides to charge a price of $25 instead of $15 an hour.
a) At the price of $25 an hour, how many hours will Maria tutor Jason?
b) At the initial equilibrium price of $15 an hour, what was Jason's total consumer surplus and Maria's total producer surplus?
c) At the price of $25 an hour, what is Jason's total consumer surplus and Maria's total producer surplus?
d) How does the sum of Jason's consumer surplus plus Maria's producer surplus compare at the initial equilibrium price of $15 an hour (part b) and at the new price of $25 an hour (part c)? Comment on any difference.

Accepted Answer

The answer of 
-Jason wants to hire Maria to tutor...

Question 10

When allocating resources using market price,

Accepted Answer

A)  everyone who is willing and able to pay for a good gets one. 
B)  everyone who wants a good gets one. 
C)  everyone who is willing to pay for a good gets one. 
D)  everyone who is able to pay for a good gets one.

Question 11

-What area in the above figure is the consumer surplus at the efficient quantity?

Accepted Answer

A)  A. 
B)  A + B + C. 
C)  F. 
D)  D + E + F.

Question 12

An external benefit is a benefit that ________.

Accepted Answer

A)  is enjoyed by someone other than the buyer of a good 
B)  always equals external cost 
C)  experiences increasing marginal returns 
D)  is greatest at the equilibrium point

Question 13

-In the above table, what is the maximum price that consumers are willing to pay for the 200th brownie?

Accepted Answer

A)  0 
B)  20¢ 
C)  60¢ 
D)  80¢

Question 14

-The above figure shows the marginal social benefit and marginal social cost curves of chocolate in the nation of Kaffenia. At Kaffenia's efficient quantity of chocolate

Accepted Answer

A)  total consumer surplus is zero. 
B)  total producer surplus is zero. 
C)  the sum of consumer surplus and producer surplus is zero. 
D)  the sum of consumer surplus and producer surplus is maximized.

Question 15

A person will choose to buy a good as long as

Accepted Answer

A)  marginal benefit is at least as great as price. 
B)  consumer surplus is positive. 
C)  marginal benefit is positive. 
D)  consumer surplus is at least as great as price.

Question 16

Joe is willing to pay $4 for his first slice of pizza and $3 for his second slice of pizza. If the price is $2, on his two slices of pizza Joe receives a total consumer surplus of

Accepted Answer

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

Question 17

Jane is willing to pay $50 for a pair of shoes. The actual price of the shoes is $30. Her marginal benefit is

Accepted Answer

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

Question 18

Resource use is efficient when

Accepted Answer

A)  marginal social benefit exceeds marginal social cost. 
B)  marginal social cost is decreasing. 
C)  marginal social benefit equals marginal social cost. 
D)  marginal social benefit is increasing.

Question 19

-In the above figure, what is the amount of consumer surplus at the efficient quantity?

Accepted Answer

A)  $0 
B)  $1,000 
C)  $2,000 
D)  $4,000

Question 20

The figure shows the competitive market for milk.
-In the figure above, when the quantity of milk produced is 600 gallons per day, what is the deadweight loss?

Accepted Answer

A)  $250 
B)  $125 
C)  $500 
D)  $50

Exam 5: Efficiency and Equity