Consumers, Producers, and the Efficiency of Markets
TRUE/FALSE
1. Welfare economics is the study of the welfare system.ANS: F DIF: 1 LOC: Supply and demand
REF: 7-1
TOP: Welfare
NAT: Analytic MSC: Definitional
2. 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.
ANS: T DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-1 NAT: Analytic TOP: Willingness to pay
3. For any given quantity, the price on a demand curve represents the marginal buyer's willingness
to pay.
ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Willingness to pay
4. 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.
ANS: F DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-1 NAT: Analytic TOP: Willingness to pay
5. 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.
ANS: F DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-1 NAT: Analytic TOP: Consumer surplus
6. 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.
ANS: T DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-1 NAT: Analytic TOP: Consumer surplus
7. Consumer surplus measures the benefit to buyers of participating in a market.ANS: T DIF: 1 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Consumer surplus
8. Consumer surplus can be measured as the area between the demand curve and the equilibrium
price.
ANS: T DIF: 1 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Consumer surplus
9. Consumer surplus can be measured as the area between the demand curve and the supply curve.ANS: F DIF: 1 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Consumer surplus
10. 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.
ANS: F DIF: 1 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Consumer surplus
11. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10.ANS: T DIF: 1 LOC: Supply and demand MSC: Applicative
REF: 7-1 NAT: Analytic TOP: Consumer surplus
12. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.ANS: F DIF: 1 LOC: Supply and demand MSC: Applicative
REF: 7-1 NAT: Analytic TOP: Consumer surplus
13. All else equal, an increase in supply will cause an increase in consumer surplus.ANS: T DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-1 NAT: Analytic TOP: Consumer surplus
14. 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.
ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-1 NAT: Analytic TOP: Consumer surplus
15. If the government imposes a binding price floor in a market, then the consumer surplus in
that market will increase.
ANS: F DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-1 NAT: Analytic TOP: Consumer surplus
16. If the government imposes a binding price floor in a market, then the consumer surplus in
that market will decrease.
ANS: T DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-1 NAT: Analytic TOP: Consumer surplus
17. 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.
ANS: T DIF: 1 LOC: Supply and demand MSC: Interpretive
REF: 7-2 NAT: Analytic TOP: Opportunity cost
18. At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.ANS: F DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-2 NAT: Analytic TOP: Opportunity cost
19. In a competitive market, sales go to those producers who are willing to supply the product
at the lowest price.
ANS: T DIF: 1 LOC: Supply and demand REF: 7-2
TOP: Efficiency NAT: Analytic MSC: Interpretive
20. Producer surplus is the amount a seller is paid minus the cost of production.ANS: T DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-2 NAT: Analytic TOP: Producer surplus
21. Producer surplus is the cost of production minus the amount a seller is paid.ANS: F DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-2 NAT: Analytic TOP: Producer surplus
22. All else equal, an increase in demand will cause an increase in producer surplus.ANS: T DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
23. All else equal, a decrease in demand will cause an increase in producer surplus.ANS: F DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
24. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is
$45.
ANS: F DIF: 1 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
25. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is
$35.
ANS: T DIF: 1 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
26. 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.
ANS: F DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
27. 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.
ANS: T DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
28. The area below the price and above the supply curve measures the producer surplus in a market.ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-2 NAT: Analytic TOP: Producer surplus
29. The area below the demand curve and above the supply curve measures the producer surplus in
a market.
ANS: F DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-2 NAT: Analytic TOP: Producer surplus
30. If the government imposes a binding price ceiling in a market, then the producer surplus in
that market will increase.
ANS: F DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-2 NAT: Analytic TOP: Producer surplus
31. 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.
ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-2 NAT: Analytic TOP: Producer surplus
32. Total surplus in a market is consumer surplus minus producer surplus.ANS: F DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-3 NAT: Analytic TOP: Total surplus
33. Total surplus = Value to buyers - Costs to sellers.ANS: T DIF: 2
LOC: Supply and demand MSC: Interpretive
REF: 7-3 NAT: Analytic TOP: Total surplus
34. 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.
ANS: F DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-3 NAT: Analytic TOP: Total surplus
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.
ANS: F DIF: 2 LOC: Supply and demand MSC: Applicative
REF: 7-3 NAT: Analytic TOP: Total surplus
36. The equilibrium of supply and demand in a market maximizes the total benefits to buyers and
sellers of participating in that market.
ANS: T DIF: 2 LOC: Supply and demand REF: 7-3
TOP: Efficiency NAT: Analytic MSC: Interpretive
37. 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.
ANS: F DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-3 NAT: Analytic TOP: Efficiency | Equality
38. Efficiency is related to the size of the economic pie, whereas equality is related to how
the pie gets sliced and distributed.
ANS: T DIF: 1 LOC: Supply and demand MSC: Definitional
REF: 7-3 NAT: Analytic TOP: Efficiency | Equality
39. 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.
ANS: T DIF: 2 LOC: Supply and demand REF: 7-3
TOP: Efficiency NAT: Analytic MSC: Interpretive
40. Economists generally believe that, although there may be advantages to society from
ticket-scalping, the costs to society of this activity outweigh the benefits.
ANS: F DIF: 2 LOC: Supply and demand REF: 7-3
TOP: Efficiency NAT: Analytic MSC: Interpretive
41. Economists argue that restrictions against ticket scalping actually drive up the cost of many
tickets.
ANS: T DIF: 2 LOC: Supply and demand REF: 7-3
TOP: Efficiency NAT: Analytic MSC: Interpretive
42. 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.
ANS: F DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-3 NAT: Analytic TOP: Efficiency | Equality
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.
ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-3 NAT: Analytic TOP: Invisible hand
44. The current policy on kidney donation effectively sets a price ceiling of zero.ANS: T DIF: 2
LOC: Supply and demand
REF: 7-3
TOP: Efficiency
NAT: Analytic MSC: Interpretive
45. Unless markets are perfectly competitive, they may fail to maximize the total benefits to
buyers and sellers.
ANS: T DIF: 2 LOC: Supply and demand REF: 7-4
TOP: Efficiency NAT: Analytic MSC: Interpretive
46. In order to conclude that markets are efficient, we assume that they are perfectly competitive.ANS: T DIF: 2 LOC: Supply and demand
REF: 7-4
TOP: Efficiency
NAT: Analytic MSC: Applicative
47. Markets will always allocate resources efficiently.ANS: F DIF: 2 LOC: Supply and demand
REF: 7-4
TOP: Efficiency NAT: Analytic MSC: Applicative
48. When markets fail, public policy can potentially remedy the problem and increase economic
efficiency.
ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-4 NAT: Analytic TOP: Market failure
49. Market power and externalities are examples of market failures.ANS: T DIF: 2 LOC: Supply and demand MSC: Interpretive
REF: 7-4 NAT: Analytic TOP: Market failure
SHORT ANSWER
1. 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
ANS:
a. Consumer surplus measures the benefit to buyers of participating in a market. It
is measured as the amount a buyer is willing to pay for a good minus the amount a buyer actually pays for it. For an individual purchase, consumer surplus is the difference between the willingness to pay, as shown on the demand curve, and the market price. For the market, total consumer surplus is the area under the demand curve and above the price, from the origin to the quantity purchased.
b. Because the demand curve shows the maximum amount buyers are willing to pay for a
given market quantity, the price given by the demand curve represents the willingness to pay of the marginal buyer.
c. When the price of a good falls, consumer surplus increases for two reasons. First,
those buyers who were already buying the good receive an increase in consumer surplus because they are paying less (area B). Second, some new buyers enter the market because the price of the good is now lower than their willingness to pay (area C); hence, there is additional consumer surplus generated from their purchases. The graph should show that as price falls from P2 to P1, consumer surplus increases from area A to area A+B+C.
d. Since the demand curve represents the maximum price the marginal buyer is willing
to pay for a good, it must also represent the maximum benefit the buyer expects to receive from consuming the good. Consumer surplus must take into account the amount the buyer actually pays for the good, with consumer surplus measured as the difference between what the buyer is willing to pay and what he/she actually paid. Consumer surplus, then, measures the benefit the buyer didn't have to \"pay for.\"
PriceAP2BP1CDFDemandQ2Q1QuantityDIF: 2 REF: 7-1 TOP: Consumer surplus NAT: Analytic LOC: Supply and demand MSC: Interpretive
2. Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats:
Value of first donut Value of second donut Value of third donut Value of fourth donut Value of fifth donut Value of sixth donut $ $ $ $ $ $ a. Use this information to construct Tammy's demand curve for donuts. b. If the price of donuts is $, 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 $
d. If the price of donuts rose to $, how many donuts would she purchase now What would
happen to Tammy's consumer surplus Show this change on your graph.
ANS:
a.
10.90.80.70.60.50.40.30.20.1PriceDemand12345678Quantityb. At a price of $, Tammy would buy 5 donuts.
c. The figure below shows Tammy's consumer surplus. At a price of $, Tammy's consumer
surplus would be $.
10.90.80.70.60.50.40.30.20.11234560.10.10.10.10.10.10.10.10.10.1Price
Demand78Quantity
d. If the price of donuts rose to $, Tammy's consumer surplus would fall to $ and she
would purchase only 3 donuts.
1Price0.90.80.70.60.10.50.10.10.40.30.20.1Demand12345678QuantityDIF: 2 REF: 7-1 TOP: Consumer surplus NAT: Analytic MSC: Applicative
LOC: Supply and demand
3. 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.
ANS:
a. Producer surplus measures the benefit to sellers of participating in a market. It
is measured as the amount a seller is paid minus the cost of production. For an individual sale, producer surplus is measured as the difference between the market price and the cost of production, as shown on the supply curve. For the market, total producer surplus is measured as the area above the supply curve and below the market price, between the origin and the quantity sold.
b. Because the supply curve shows the minimum amount sellers are willing to accept
for a given quantity, the supply curve represents the cost of the marginal seller. c. When the price of a good rises, producer surplus increases for two reasons. First,
those sellers who were already selling the good have an increase in producer surplus because the price they receive is higher (area A). Second, new sellers will enter the market because the price of the good is now higher than their willingness to sell (area B); hence, there is additional producer surplus generated from their sales. The graph should show that as price rises from P1 to P2, producer surplus increases from area C to area A+B+C.
PriceSupplyP2AP1CGBDQ1Q2QuantityDIF: 2 REF: 7-2 TOP: Producer surplus NAT: Analytic LOC: Supply and demand MSC: Interpretive
4. Given the following equations two equations:
1) Total Surplus = Consumer Surplus + Producer Surplus 2) Total Surplus = Value to Buyers - Cost to Sellers
Show how equation (1) can be used to derive equation (2).
ANS:
Start with the equation: Total Surplus = Consumer Surplus + Producer Surplus. Then, since Consumer Surplus = Value to buyers - Amount paid by buyers, and since Producer Surplus = Amount received by sellers - Costs of sellers, then Total Surplus can be written as: Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers. Since the Amount paid by buyers equals the Amount received by sellers, the middle two terms cancel out and the result is: Total Surplus = Value to buyers - Costs of sellers.
DIF: 2 REF: 7-3 NAT: Analytic
TOP: Total surplus MSC: Analytical
LOC: Supply and demand
5. Answer the following questions based on the graph that represents .'s demand for ribs per
week of ribs at Judy's rib shack.
a. b. c. d. e. f. g. h. i.
2018161412108621020304050607080QuantityAt the equilibrium price, how many ribs would . be willing to purchase How much is . willing to pay for 20 ribs
What is the magnitude of .'s consumer surplus at the equilibrium price At the equilibrium price, how many ribs would Judy be willing to sell
How high must the price of ribs be for Judy to supply 20 ribs to the market At the equilibrium price, what is the magnitude of total surplus in the market If the price of ribs rose to $10, what would happen to .'s consumer surplus If the price of ribs fell to $5, what would happen to Judy's producer surplus Explain why the graph that is shown verifies the fact that the market equilibrium (quantity) maximizes the sum of producer and consumer surplus.
PriceSupplyDemandANS:
a. b. c. d. e. f. g. h. i.
40 $ $. 40 $5 $200
It would fall from $80 to only $20. It would fall from $120 to only $30.
At quantities less than the equilibrium quantity, the marginal value to buyers exceeds the marginal cost to sellers. Increasing the quantity in this region raises total surplus until equilibrium quantity is reached. At quantities greater than the equilibrium quantity, the marginal cost to sellers exceeds the marginal value to buyers and total surplus falls.
DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus | Total surplus MSC: Analytical
Sec00 - Consumers, Producers, and the Efficiency of Markets
MULTIPLE CHOICE
1. 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.
ANS: A DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Welfare
2. 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.
ANS: D DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Welfare
3. 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.
ANS: C DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Welfare
4. 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.
ANS: D DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Welfare
5. 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.
ANS: A DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Positive statements
6. 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.
ANS: C DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Normative statements
7. 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.
ANS: B DIF: 2 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
8. 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.
ANS: C DIF: 2 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
9. 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.
ANS: C DIF: 1 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
10. 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.
ANS: B DIF: 2 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
11. 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.
ANS: C DIF: 2 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
12. 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.
ANS: C DIF: 2 REF: 7-0 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Welfare
Sec01 - Consumers, Producers, and the Efficiency of Markets - Consumer Surplus
MULTIPLE CHOICE
1. The maximum price that a buyer will pay for a good is called the
a. cost.
b. willingness to pay. c. equity. d. efficiency.
ANS: B DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Willingness to pay
2. 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.
ANS: B DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Willingness to pay
3. 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.
ANS: B DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Willingness to pay
4. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Willingness to pay
5. 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.
ANS: C
NAT: Analytic DIF: 2 REF: 7-1 TOP: Willingness to pay
MSC: Interpretive
6. 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.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Willingness to pay
7. 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.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Willingness to pay
8. 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.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Willingness to pay
9. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Consumer surplus
10. 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.
ANS: B DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Consumer surplus
11. 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.
ANS: C DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Consumer surplus
12. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Consumer surplus
13. 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.
ANS: B DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
14. 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.
ANS: B DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
15. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
16. Consumer surplus is
a. a concept that helps us make normative statements about the desirability of market
outcomes.
b. represented on a graph by the area below the demand curve and above the price. c. a good measure of economic welfare if buyers' preferences are the primary concern. d. All of the above are correct.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
17. 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.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Marginal buyer
Table 7-1 Buyer Mike Sandy Jonathan Haley Willingness To Pay $ $ $ $ 18. Refer to Table 7-1. If 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
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
19. Refer to Table 7-1. If the price of the product is $22, 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
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
20. Refer to Table 7-1. If the price of the product is $51, then who would be willing to purchase
the product a. Mike
b. Mike and Sandy
c. Mike, Sandy, and Jonathan d. no one
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
21. Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is
a. $38. b. $42. c. $46. d. $72.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
22. Refer to Table 7-1. If price of the product is $30, then the total consumer surplus is
a. $-10. b. $-6. c. $20. d. $30.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Table 7-2
This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Buyer Willingness To Pay David $ Laura $ Megan $ Mallory $ Audrey $ 23. Refer to Table 7-2. If the price of Vanilla Coke is $, who will purchase the good
a. all five individuals
b. Megan, Mallory and Audrey c. David, Laura and Megan d. David and Laura
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
24. Refer to Table 7-2. Which of the following is not true
a. At a price of $, no buyer is willing to purchase Vanilla Coke.
b. At a price of $, Megan is indifferent between buying a case of Vanilla Coke and not
buying one.
c. At a price of $, total consumer surplus in the market will be $. d. All of the above are correct.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
25. Refer to Table 7-2. If the market price is $, the consumer surplus in the market will be
a. $. b. $. c. $. d. $.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
26. Refer to Table 7-2. If the market price is $,
a. David’s consumer surplus is $ and total consumer surplus for the five individuals
is $.
b. Megan’s consumer surplus is $ and total consumer surplus for the five individuals
is $.
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.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Table 7-3
The only four consumers in a market have the following willingness to pay for a good:
Buyer Carlos Quilana Wilbur Ming-la Willingness to Pay $15 $25 $35 $45 27. Refer to Table 7-3. If the market price for the good is $30, who will purchase the good
a. Carlos only
b. Carlos and Quilana only
c. Carlos, Quilana, and Wilbur only d. Wilbur and Ming-la only
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
28. Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each
other for the right to purchase it, then the good will sell for a. $15 or slightly less. b. $25 or slightly more. c. $35 or slightly more. d. $45 or slightly less.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
29. Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each
other for the right to purchase it, then the consumer surplus will be a. $0 or slightly more. b. $10 or slightly less. c. $30 or slightly more. d. $45 or slightly less.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
30. Refer to Table 7-3. If the price is $30, then consumer surplus in the market is
a. $20, and Wilbur and Ming-la purchase the good. b. $20, and Carlos and Quilana purchase the good. c. $30, and Wilbur and Ming-la purchase the good. d. $30, and Carlos and Quilana purchase the good.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
31. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of
the good increases from $20 to $22 a. Quilana b. Wilbur c. Ming-la
d. All three buyers experience the same loss of consumer surplus.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Table 7-4
The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis Cardinal’s baseball game at Wrigley Field.
Buyer Jennifer Bryce Dan David Ken Lisa Willingness to Pay $10 $15 $20 $25 $50 $60 32. Refer to Table 7-4. If you have a ticket that you sell to the group in an auction, what will
be the selling price a. $21 b. $26 c. $51 d. $61
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
33. Refer to Table 7-4. If you have a ticket that you sell to the group in an auction, who will
buy the ticket a. Dan b. David c. Ken d. Lisa
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
34. Refer to Table 7-4. If tickets sell for $20 each, then what is the total consumer surplus
in the market a. $5 b. $30 c. $40 d. $75
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
35. Refer to Table 7-4. If tickets sell for $25 each, then what is the total consumer surplus
in the market a. $25 b. $35 c. $60 d. $110
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
36. Refer to Table 7-4. If you have two (essentially) identical tickets that you sell to the
group in an auction, what will be the selling price for each ticket a. $21 b. $26 c. $51 d. $61
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Table 7-5
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.
Alex Barb Carlos First Orange $ $ $ Second Orange $ $ $ Third Orange $ $ $0 37. Refer to Table 7-5. If the market price of an orange is $, the market quantity of oranges
demanded per day is a. 1. b. 2. c. 3. d. 4.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Market demand
38. Refer to Table 7-5. If the market price of an orange is $, the market quantity of oranges
demanded per day is a. 5. b. 6. c. 7. d. 9.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Market demand
39. Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 5 if the price
of an orange, P, satisfies a. $ < P < $. b. $ < P < $. c. $ < P < $. d. $ < P < $.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Market demand
40. Refer to Table 7-5. If the market price of an orange is $, consumer surplus amounts to
a. $. b. $. c. $. d. $.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
41. Refer to Table 7-5. If the market price of an orange is $,
a. 6 oranges are demanded per day, and total consumer surplus amounts to $. b. 6 oranges are demanded per day, and total consumer surplus amounts to $. c. 7 oranges are demanded per day, and total consumer surplus amounts to $. d. 7 oranges are demanded per day, and total consumer surplus amounts to $.
ANS: D DIF: 3 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Market demand | Consumer surplus
MSC: Analytical
42. Refer to Table 7-5. If the market price of an orange increases from $ to $, total consumer
surplus
a. increases by $. b. decreases by $. c. decreases by $. d. decreases by $.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
43. Refer to Table 7-5. If the market price of an orange increases from $ to $, total consumer
surplus
a. increases by $. b. decreases by $. c. decreases by $. d. decreases by $.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
44. Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of
an orange increases from $ to $ a. Alex b. Barb c. Carlos
d. All three individuals experience the same loss of consumer surplus.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
45. Refer to Table 7-5. Who experiences the largest gain in consumer surplus when the price of
an orange decreases from $ to $ a. Alex b. Barb c. Carlos
d. Alex and Barb experience the same gain in consumer surplus, and Carlos’s gain is
zero.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
46. Refer to Table 7-5. 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 $.
c. If the price of an orange is $, total consumer surplus is $. d. All of the above are correct.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
47. You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley
Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game a. $0 b. $10 c. $40 d. $50
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
48. A drought in California destroys many red grapes. As a result of the drought, the consumer
surplus in the market for red grapes
a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
49. Olaf would be willing to pay $35 to attend a dog show, but he buys a ticket for $20. Olaf
values the dog show at a. $15. b. $20. c. $35. d. $50.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
50. If a consumer places a value of $15 on a particular good and if the price of the good is $17,
then the
a. consumer has consumer surplus of $2 if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market.
d. price of the good will fall due to market forces.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
51. If a consumer places a value of $20 on a particular good and if the price of the good is $25,
then the
a. consumer has consumer surplus of $5 if he buys the good. b. consumer does not purchase the good.
c. price of the good will rise due to market forces. d. market is out of equilibrium.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
52. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
53. Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite
outlet shoe store for $48. Kelly's consumer surplus is a. $10. b. $20. c. $48. d. $68.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
55. Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His
consumer surplus is
a. $0 because the cost exceeds his maximum willingness to pay. b. $15. c. $25. d. $65.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
56. 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.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
57. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
58. 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, Kendra’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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
59. Sarah buys a new MP3 player 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.
ANS: D
NAT: Analytic DIF: 2 REF: 7-1 TOP: Consumer surplus
MSC: Applicative
60. Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $ per
can. On a particular day, he is willing to pay $ for the first can, $ for the second can, $ for the third can, and $ for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is a. $. b. $. c. $. d. $.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
61. 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.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
62. Chad is willing to pay $ to get his first cup of morning latté. He buys a cup from a vendor
selling latté for $ per cup. Chad's consumer surplus is a. $. b. $. c. $. d. $.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
63. Chad is willing to pay $ to get his first cup of morning latté; he is willing to pay $ for
a second cup. He buys his first cup from a vendor selling latté for $ per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $ 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.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
. 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.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
65. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in
buying one for $350. Denise's consumer surplus is a. $150. b. $350. c. $500. d. $850.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
66. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds
in buying one for $3,000. Michael's willingness to pay is a. $500. b. $3,000. c. $3,500. d. $6,500.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
67. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds
in buying one for $3,000. Michael's consumer surplus is a. $500. b. $3,000. c. $3,500. d. $6,500.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
68. 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.
d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus
of $0.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
69. 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.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Willingness to pay
70. 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
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
71. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
72. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
73. 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. Consumer surplus increases. b. Consumer surplus decreases.
c. Consumer surplus 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.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
74. 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.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
75. 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
th
a. the marginal buyer's willingness to pay for the 100 unit of the good is $25.
th
b. the sum of the five buyers' willingness to pay for the 100 unit of the good is $25.
th
c. the average of the five buyers' willingness to pay for the 100 unit of the good is
$25.
th
d. all of the five buyers are willing to pay at least $25 for the 100 unit of the good.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Marginal buyer
76. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
77. All else equal, what happens to consumer surplus if the price of a good increases
a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.
d. Consumer surplus may increase, decrease, or remain unchanged.
ANS: B DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
78. All else equal, what happens to consumer surplus if the price of a good decreases
a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.
d. Consumer surplus may increase, decrease, or remain unchanged.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
79. Which of the following will cause an increase in consumer surplus
a. an increase in the production cost of the good
b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good
d. the imposition of a binding price floor in the market
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
80. Which of the following will cause a decrease in consumer surplus
a. an increase in the number of sellers of the good b. a decrease in the production cost of the good
c. sellers expect the price of the good to be lower next month d. the imposition of a binding price floor in the market
ANS: D DIF: 3 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
81. 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.
ANS: A DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
82. If the price of oak lumber increases, what happens to consumer surplus in the market for oak
cabinets
a. Consumer surplus increases. b. Consumer surplus decreases.
c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.
ANS: B DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
83. 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.
ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Willingness to pay
MSC: Interpretive
84. 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.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
85. 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.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
86. 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.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
87. Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that
Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then
a. Dallas's consumer surplus would be unaffected. b. Dallas's consumer surplus would increase. c. Dallas's consumer surplus would decrease.
d. Dallas would be wise to buy fewer strawberries than before.
ANS: B DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
Figure 7-1
PriceAP2BP1CDFDemandQ2Q1Quantity88. 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.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
. Refer to Figure 7-1. When the price is P2, consumer surplus is
a. A. b. B. c. A+B. d. A+B+C.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
90. 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.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
91. Refer to Figure 7-1. Area C represents the
a. 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. increase in producer surplus when quantity sold increases from Q2 to Q1.
d. decrease in consumer surplus to each consumer in the market when the price increases
from P1 to P2.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
92. 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.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Figure 7-2
PriceABP1DFGCP2DemandQ1Q2Quantity93. Refer to Figure 7-2. Which area represents consumer surplus at a price of P1
a. ABD b. ACG c. BCDF d. DFG
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
94. Refer to Figure 7-2. Which area represents consumer surplus at a price of P2
a. ABD b. ACG c. BCDF d. DFG
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
95. Refer to Figure 7-2. Which area represents the increase in consumer surplus when the price
falls from P1 to P2 a. ABD b. ACG c. DFG d. BCGD
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
96. 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. ACG c. BCFD d. DFG
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
97. 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. ACG c. BCDF d. DFG
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Figure 7-3
98. Refer to Figure 7-3. If the price of the good is $6, then consumer surplus is
a. $4. b. $6. c. $8. d. $10.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
99. Refer to Figure 7-3. If the price of the good is $5, then consumer surplus is
a. $9. b. $11. c. $13. d. $16.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Figure 7-4
Price1701601501401301201101009080706050403020102456810121416182022SupplyDemand25242628Quantity100. Refer to Figure 7-4. At the equilibrium price, consumer surplus is
a. $200. b. $300. c. $500. d. $600.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
101. Refer to Figure 7-4. If the government imposes a price floor of $120 in this market, then
consumer surplus will decrease by a. $75. b. $125. c. $225. d. $300.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
Figure 7-5
Price2502252001751501251007550252550Demand75100125150Quantity102. Refer to Figure 7-5. What is the consumer surplus if the price is $100
a. $2,500 b. $5,000 c. $10,000 d. $20,000
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
103. Refer to Figure 7-5. What happens to the consumer surplus if the price rises from $100 to
$150
a. The new consumer surplus is half of the original consumer surplus.
b. The new consumer surplus is 25 percent of the original consumer surplus. c. The new consumer surplus is double the original consumer surplus. d. The new consumer surplus is triple the original consumer surplus.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-1 LOC: Supply and demand
TOP: Consumer surplus
104. Consumer surplus is a good measure of economic welfare if policymakers want to
a. maximize total benefit. b. minimize deadweight loss.
c. respect the preferences of sellers. d. respect the preferences of buyers.
ANS: D DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
Sec02 - Consumers, Producers, and the Efficiency of Markets - Producer Surplus
MULTIPLE CHOICE
1. A seller’s opportunity cost measures the
a. value of everything she must give up to produce a good.
b. amount she is paid for a good minus her cost of providing it. c. consumer surplus.
d. out of pocket expenses to produce a good but not the value of her time.
ANS: A DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Cost
2. Cost is a measure of the
a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage.
d. seller's willingness to buy.
ANS: A DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Cost
3. Ally mows lawns for a living. Ally’s out-of-pocket expenses (for equipment, gasoline, and
so on) plus the value that she places on her own time amount to her a. producer surplus. b. producer deficit. c. cost of mowing lawns. d. profit.
ANS: C DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Cost
4. A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers. b. quantity supplied. c. sellers' costs.
d. the amount that will be purchased by consumers in the market.
ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus | Supply curve MSC: Interpretive
5. A seller is willing to sell a product only if the seller receives a price that is at least
as great as the
a. seller’s producer surplus. b. sellers’s cost of production. c. seller’s profit.
d. average willingness to pay of buyers of the product.
ANS: B DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Cost
6. Producer surplus is
a. measured using the demand curve for a good.
b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production.
d. the opportunity cost of production minus the cost of producing goods that go unsold.
ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Producer surplus
7. Producer surplus measures the
a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers
demand.
ANS: A DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
8. A seller’s willingness to sell is
a. measured by the seller’s cost of production.
b. related to her supply curve, just as a buyer’s willingness to buy is related to his
demand curve.
c. less than the price received if producer surplus is a positive number. d. All of the above are correct.
ANS: D DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
9. Karen sharpens knives in her spare time for extra income. Buyers of her service are willing
to pay $ per knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $, the second knife for $, the third knife for $, and the fourth knife for $. Assume Karen is rational in deciding how many knives to sharpen. Her producer surplus is a. $. b. $. c. $. d. $.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
10. Anita sharpens knives in her spare time for extra income. Buyers of her service are willing
to pay $ per knife for as many knives as Anita is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $, the second knife for $, the third knife for $, and the fourth knife for $. Assume Anita is rational in deciding how many knives to sharpen. Her producer surplus is a. $. b. $. c. $. d. $.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
11. David tunes pianos in his spare time for extra income. Buyers of his service are willing to
pay $150 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $25. b. $35. c. $70. d. $95.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
12. David tunes pianos in his spare time for extra income. Buyers of his service are willing to
pay $135 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $-15. b. $20. c. $30. d. $75.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
13. Ivana produces cookies. Her production cost is $6 per dozen. She sells the cookies for $8
per dozen. Her producer surplus per dozen cookies is a. $2. b. $6. c. $8. d. $14.
ANS: A DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
14. Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his
producer surplus per ton is a. $150. b. $200. c. $350. d. $550.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 1 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
15. If Roberta sells a shirt for $30, and her producer surplus from the sale is $23, her cost
must have been a. $53. b. $30. c. $7.
d. We would have to know the consumer surplus in order to make this determination.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
16. Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10,
the cost of mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is a. $25. b. $30. c. $36. d. $45.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
17. At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of
selling three cakes, Nick experiences a producer surplus in the amount of $. Nick must be selling his cakes for a. $ each. b. $ each. c. $ each. d. $ each.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
18. Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On
a certain day, they sell 40 cups, and their producer surplus for that day amounts to $. Kristi and Rebecca sold each cup for a. 31 cents. b. 38 cents. c. 45 cents. d. 55 cents.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Table 7-6
The following table represents the costs of five possible sellers.
Seller Abby Bobby Carlos Dianne Evalina Cost $1,500 $1,200 $1,000 $750 $500 19. Refer to Table 7-6. If the market price is $1,000, the producer surplus in the market is
a. $700. b. $750. c. $2,250. d. $3,700.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
20. Refer to Table 7-6. If the market price is $900, the producer surplus in the market is
a. $350. b. $550. c. $750. d. $1,000.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
21. Refer to Table 7-6. If the market price is $1,100, the combined total cost of all participating
sellers is a. $3,700. b. $2,700. c. $2,250. d. $1,250.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Opportunity cost
22. Refer to Table 7-6. If the market price is $900, the combined total cost of all participating
sellers is a. $3,700. b. $2,700. c. $2,250. d. $1,250.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Opportunity cost
23. Refer to Table 7-6. If the price is $1,000,
a. Bobby is an eager supplier. b. Dianne is an eager supplier.
c. Abby’s producer surplus is $500. d. All of the above are correct.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus | Supply
24. Refer to Table 7-6. If the price is $775, who would be willing to supply the product
a. Abby and Bobby
b. Abby, Bobby, and Carlos c. Carlos, Dianne, and Evalina d. Dianne and Evalina
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus | Supply
25. Refer to Table 7-6. Suppose each of the five sellers can supply at most one unit of the good.
The market quantity supplied is exactly 3 if the price is a. $670. b. $770. c. $970. d. $1,170.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus | Supply
26. Refer to Table 7-6. Suppose each of the five sellers can supply at most one unit of the good.
The market quantity supplied is exactly 4 if the price is a. $770. b. $970. c. $1,170. d. $1,370.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus | Supply
27. Refer to Table 7-6. Who is a marginal seller when the price is $1,200
a. Bobby
b. Bobby and Abby
c. Carlos, Dianne, and Evalina
d. Carlos, Dianne, Evalina, and Bobby
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Marginal seller
Table 7-7
The only four producers in a market have the following cost:
Seller Charlie Quinn Wrex Maxine Cost $50 $100 $150 $200 28. Refer to Table 7-7. If the sellers bid against each other for the right to sell the good
to a consumer, then the good will sell for a. $50 or slightly more. b. $100 or slightly less. c. $150 or slightly less. d. $200 or slightly more.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Price | Cost
29. Refer to Table 7-7. If the sellers bid against each other for the right to sell the good
to a consumer, then the producer surplus will be a. $0 or slightly more. b. $50 or slightly less. c. $150 or slightly less. d. $200 or slightly more.
ANS: B DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand
TOP: Price | Cost | Producer surplus MSC: Analytical
30. Refer to Table 7-7. If Charlie, Quinn, and Wrex sell the good, and the resulting producer
surplus is $300, then the price must have been a. $200. b. $300. c. $450. d. $600.
ANS: A DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand
TOP: Price | Cost | Producer surplus MSC: Analytical
31. Refer to Table 7-7. If Charlie, Quinn, Wrex, and Maxine sell the good, and the resulting
producer surplus is $700, then the price must have been a. $200. b. $300. c. $500. d. $700.
ANS: B DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand
TOP: Price | Cost | Producer surplus MSC: Analytical
Table 7-8
The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality.
Seller Marcia Jan Cindy Greg Peter Bobby Cost $200 $250 $350 $400 $700 $800 32. Refer to Table 7-8. You wish to purchase 10 piano lessons, so you take bids from each of
the sellers. You will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept a. $351 b. $251 c. $249 d. $199
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
33. Refer to Table 7-8. You wish to purchase 10 piano lessons for yourself and for your brother,
so you take bids from each of the sellers. You will take lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept a. $351 b. $349 c. $201 d. $199
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
34. Refer to Table 7-8. The equilibrium market price for 10 piano lessons is $400. What is the
total producer surplus in the market a. $0 b. $300 c. $400 d. $700
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
35. Refer to Table 7-8. The equilibrium market price for 10 piano lessons is $300. What is the
total producer surplus in the market a. $50 b. $150 c. $1,050 d. $1,500
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
36. Refer to Table 7-8. You wish to purchase 10 piano lessons, so you take bids from each of
the sellers. The bids are required to be rounded to the nearest dollar. You will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. Your parents have given you $450 to spend on piano lessons. You believe that the sellers with higher opportunity costs offer higher quality lessons. You want the highest quality lessons that you can afford, but you can spend any remaining money on dinner with friends. From whom will you take lessons, and how much money will you spend a. Peter; $450 b. Cindy; $450 c. Greg; $401 d. Cindy; $401
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-6
37. Refer to Figure 7-6. If the price of the good is $, then producer surplus is
a. $. b. $. c. $. d. $.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
38. Refer to Figure 7-6. If the price of the good is $14, then producer surplus is
a. $17. b. $22. c. $25. d. $28.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-7
PriceSupplyADHP2P1BGCQ1Q2Quantity39. Refer to Figure 7-7. Which area represents producer surplus when the price is P1
a. BCG b. ACH c. ABGD d. DGH
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
40. Refer to Figure 7-7. Which area represents producer surplus when the price is P2
a. BCG b. ACH c. ABGD d. AHGB
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
41. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price
rises from P1 to P2 a. BCG b. ACH c. ABGD d. AHGB
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
42. Refer to Figure 7-7. When the price rises from P1 to P2, which area represents the increase
in producer surplus to existing producers a. BCG b. ACH c. DGH d. ABGD
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
43. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price
rises from P1 to P2 due to new producers entering the market a. BCG b. ACH c. DGH d. AHGB
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-8
300275250225200175150125100755025D2550D'QuantityPriceS'S7510012515017520044. Refer to Figure 7-8. If the supply curve is S, the demand curve is D, and the equilibrium
price is $100, what is the producer surplus a. $625 b. $1,250 c. $2,500 d. $5,000
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
45. Refer to Figure 7-8. If the supply curve is S’, the demand curve is D, and the equilibrium
price is $150, what is the producer surplus a. $625 b. $1,250 c. $2,500 d. $5,000
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
46. Refer to Figure 7-8. If the demand curve is D and the supply curve shifts from S’ to S,
what is the change in producer surplus a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
47. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’,
what is the change in producer surplus a. Producer surplus increases by $3,125. b. Producer surplus increases by $5,625. c. Producer surplus decreases by $3,125. d. Producer surplus decreases by $5,625.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
48. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’,
what is the increase in producer surplus to existing producers a. $625 b. $2,500 c. $3,125 d. $5,625
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
49. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’,
what is the increase in producer surplus due to new producers entering the market a. $625 b. $2,500 c. $3,125 d. $5,625
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-9
250225200175150125100755025255075100125150QuantityPriceS50. Refer to Figure 7-9. If the equilibrium price is $50, what is the producer surplus
a. $625 b. $3,750 c. $5,625 d. $10,000
ANS: A
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
51. Refer to Figure 7-9. If the equilibrium price is $200, what is the producer surplus
a. $625 b. $3,750 c. $10,000 d. $20,000
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
52. Refer to Figure 7-9. If the equilibrium price rises from $50 to $200, what is the additional
producer surplus to initial producers a. $625 b. $3,750 c. $5,625 d. $10,000
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
53. Refer to Figure 7-9. If the equilibrium price rises from $50 to $200, what is the producer
surplus to new producers a. $625 b. $3,750 c. $5,625 d. $10,000
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-10
Price1701601501401301201101009080706050403020101234567101112131415161718192021222324SD25Quantity. Refer to Figure 7-10. At the equilibrium price, producer surplus is
a. $200. b. $400. c. $450. d. $900.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
55. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then
the new producer surplus will be a. $50. b. $100. c. $175. d. $350.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
56. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then
producer surplus will decrease by a. $50. b. $125. c. $150. d. $200.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
Figure 7-11
PriceSupplyP2AP1CGBDQ1Q2Quantity57. Refer to Figure 7-11. When the price is P2, producer surplus is
a. A. b. A+C. c. A+B+C. d. D+G.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
58. Refer to Figure 7-11. When the price is P1, producer surplus is
a. A. b. C. c. A+B. d. C+D.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
59. Refer to Figure 7-11. When the price falls from P2 to P1, producer surplus
a. decreases by an amount equal to C. b. decreases by an amount equal to A+B. c. decreases by an amount equal to A+C. d. increases by an amount equal to A+B.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
60. Refer to Figure 7-11. When the price rises from P1 to P2, what area represents the increase
in producer surplus a. A b. A+B c. A+B+C d. G
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
61. Refer to Figure 7-11. When the price rises from P1 to P2, which area represents the increase
in producer surplus to existing producers a. A b. A+B c. A+B+C d. G
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
62. Refer to Figure 7-11. When the price rises from P1 to P2, which area represents the increase
in producer surplus due to new producers entering the market a. A b. B c. A+B d. G
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
63. Refer to Figure 7-11. Area A represents
a. producer surplus to new producers entering the market as the result of an increase
in price from P1 to P2.
b. the increase in consumer surplus that results from an upward-sloping supply curve. c. the increase in total surplus when sellers are willing and able to increase supply
from Q1 to Q2.
d. the increase in producer surplus to those producers already in the market when the
price increases from P1 to P2.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
. Refer to Figure 7-11. Area B represents
a. the combined profits of all producers when the price is P2.
b. the increase in producer surplus to all producers as the result of an increase in
the price from P1 to P2.
c. producer surplus to new producers entering the market as the result of an increase
in the price from P1 to P2.
d. that portion of the increase in producer surplus that is offset by a loss in consumer
surplus when the price increases from P1 to P2.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
65. Refer to Figure 7-6. When the price falls from P2 to P1, which of the following would not
be true
a. The sellers who still sell the good are worse off because they now receive less. b. Some sellers leave the market because they are not willing to sell the good at the
lower price.
c. The total cost of what is now sold by sellers is actually higher than it was before
the decrease in the price.
d. Producer surplus would fall by area A + B.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
66. Producer surplus equals
a. Value to buyers - Amount paid by buyers.
b. Amount received by sellers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.
ANS: B DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Producer surplus
67. Producer surplus is the
a. area under the supply curve to the left of the amount sold. b. amount a seller is paid minus the cost of production.
c. area between the supply and demand curves, above the equilibrium price. d. cost to sellers of participating in a market.
ANS: B DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
68. Producer surplus is the area
a. under the supply curve.
b. between the supply and demand curves.
c. below the price and above the supply curve. d. under the demand curve and above the price.
ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
69. Producer surplus is
a. represented on a graph by the area below the demand curve and above the supply curve. b. the amount a seller is paid minus the cost of production. c. also referred to as excess supply. d. All of the above are correct.
ANS: B DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
70. Producer surplus directly measures
a. the well-being of society as a whole. b. the well-being of buyers and sellers. c. the well-being of sellers. d. sellers’ willingness to sell.
ANS: C DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
71. Producer surplus directly measures
a. the well-being of sellers. b. production costs. c. excess demand.
d. unsold inventories.
ANS: A DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
72. The marginal seller is the seller who
a. cannot compete with the other sellers in the market.
b. would leave the market first if the price were any lower. c. can produce at the lowest cost. d. has the largest producer surplus.
ANS: B DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Marginal seller
73. The marginal seller is the seller
a. for whom the marginal cost of producing one more unit of output is the lowest among
all sellers, and the marginal buyer is the buyer for whom the marginal benefit of one more unit of the good is the highest among all buyers.
b. who supplies the smallest quantity of the good among all sellers, and the marginal
buyer is the buyer who demands the smallest quantity of the good among all buyers. c. who would leave the market first if the price were any lower, and the marginal buyer
is the buyer who would leave the market first if the price were any higher.
d. who has the largest producer surplus, and the marginal buyer is the buyer who has
the largest consumer surplus.
ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Marginal seller
74. Suppose the demand for nachos increases. What will happen to producer surplus in the market
for nachos
a. It increases. b. It decreases.
c. It remains unchanged.
d. It may increase, decrease, or remain unchanged.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
75. Suppose the demand for nachos decreases. What will happen to producer surplus in the market
for nachos
a. It increases. b. It decreases.
c. It remains unchanged.
d. It may increase, decrease, or remain unchanged.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
76. Which of the following will cause an increase in producer surplus
a. the imposition of a binding price ceiling in the market b. buyers expect the price of the good to be lower next month c. the price of a substitute increases
d. income increases and buyers consider the good to be inferior
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
77. If the demand for a good or service decreases, producer surplus
a. increases. b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
78. If the demand for a good or service increases, producer surplus
a. increases. b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
79. The Surgeon General announces that eating chocolate increases tooth decay. As a result, the
equilibrium price of chocolate
a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus increases. d. decreases, and producer surplus decreases.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
80. Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of
grass seed will
a. decrease, and producer surplus in the industry will decrease. b. increase, and producer surplus in the industry will increase. c. decrease, and producer surplus in the industry will increase. d. increase, and producer surplus in the industry will decrease.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-2 LOC: Supply and demand
TOP: Producer surplus
81. Which of the following statements is not correct
a. A seller would be eager to sell her product at a price higher than her cost. b. A seller would refuse to sell her product at a price lower than her cost.
c. A seller would be indifferent about selling her product at a price equal to her cost. d. Since sellers cannot set the price for their product, they must be willing to sell
their product at any price.
ANS: D DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Cost
82. Which of the following events would increase producer surplus
a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs increase and the price of the good decreases. d. All of the above are correct.
ANS: A DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
83. Which of the following will cause a decrease in producer surplus
a. the imposition of a binding price ceiling in the market b. an increase in the number of buyers of the good
c. income increases and buyers consider the good to be normal d. the price of a complement decreases
ANS: A DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
Sec03 - Consumers, Producers, and the Efficiency of Markets - Market Efficiency
MULTIPLE CHOICE
1. Which tools allow economists to determine if the allocation of resources determined by free
markets is desirable
a. profits and costs to firms b. consumer and producer surplus
c. the equilibrium price and quantity d. incomes of and prices paid by buyers
ANS: B DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
2. Economists typically measure efficiency using
a. the price paid by buyers.
b. the quantity supplied by sellers. c. total surplus. d. profits to firms.
ANS: C DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
3. Consumer surplus equals the
a. value to buyers minus the amount paid by buyers. b. value to buyers minus the cost to sellers.
c. amount received by sellers minus the cost to sellers.
d. amount received by sellers minus the amount paid by buyers.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Consumer surplus
4. Producer surplus equals the
a. value to buyers minus the amount paid by buyers. b. value to buyers minus the cost to sellers.
c. amount received by sellers minus the cost to sellers.
d. amount received by sellers minus the amount paid by buyers.
ANS: C DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Producer surplus
5. Total surplus
a. can be used to measure a market’s efficiency. b. is the sum of consumer and producer surplus.
c. is the to value to buyers minus the cost to sellers. d. All of the above are correct.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
6. Total surplus is
a. the total cost to sellers of providing the good minus the total value of the good
to buyers.
b. the total value of the good to buyers minus the cost to sellers of providing the good. c. the difference between consumer surplus and sellers’ cost. d. always smaller than producer surplus.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
7. Total surplus is
a. equal to producer surplus plus consumer surplus.
b. equal to the total cost to sellers minus the total value to buyers. c. equal to consumers' willingness to pay plus producers’ cost. d. greater than the sum of consumer surplus plus producer surplus.
ANS: A
NAT: Analytic DIF: 1 REF: 7-3 TOP: Total surplus
MSC: Definitional
8. Total surplus is equal to
a. value to buyers - profit to sellers. b. value to buyers - cost to sellers. c. consumer surplus x producer surplus.
d. (consumer surplus + producer surplus) x equilibrium quantity.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
9. Total surplus in a market is equal to
a. value to buyers - amount paid by buyers.
b. amount received by sellers - costs of sellers. c. value to buyers - costs of sellers.
d. amount received by sellers - amount paid by buyers.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
10. Total surplus in a market is equal to
a. consumer surplus + producer surplus. b. value to buyers - amount paid by buyers.
c. amount received by sellers - costs of sellers. d. producer surplus - consumer surplus.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Total surplus
11. Total surplus is represented by the area
a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price.
d. between the demand and supply curves up to the point of equilibrium.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
12. Which of the following equations is not valid
a. Consumer surplus = Value to buyers - Amount paid by buyers
b. Producer surplus = Amount received by sellers - Cost to sellers
c. Total surplus = Value to buyers - Amount paid by buyers + Amount received by sellers
- Costs of sellers
d. Total surplus = Value to sellers - Cost to sellers
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Total surplus
13. Which of the following equations is valid
a. Consumer surplus = Total surplus - Cost to sellers b. Producer surplus = Total surplus - Consumer surplus c. Total surplus = Value to buyers - Amount paid by buyers
d. Total surplus = Amount received by sellers - Cost to sellers
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Total surplus
14. Total surplus is represented by the area below the
a. demand curve and above the price.
b. price and up to the point of equilibrium.
c. demand curve and above the supply curve, up to the equilibrium quantity. d. demand curve and above the horizontal axis, up to the equilibrium quantity.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
15. Which of the following is correct
a. Consumer surplus refers to a situation in which there are more buyers than sellers
in a market.
b. Producer surplus refers to a situation in which there are more sellers than buyers
in a market.
c. Total surplus is measured as the area below the demand curve and above the supply
curve.
d. All of the above are correct.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
16. We can say that the allocation of resources is efficient if
a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers’ costs are minimized.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus | Efficiency
17. Efficiency in a market is achieved when
a. a social planner intervenes and sets the quantity of output after evaluating buyers'
willingness to pay and sellers' costs.
b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit.
d. no buyer is willing to pay more than the equilibrium price for any unit of the good.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
18. At the equilibrium price of a good, the good will be purchased by those buyers who
a. value the good more than price. b. value the good less than price. c. have the money to buy the good. d. consider the good a necessity.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
19. Which of the following statements is not correct about a market in equilibrium
a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good.
c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Interpretive
20. Efficiency is attained when
a. total surplus is maximized. b. producer surplus is maximized. c. all resources are being used.
d. consumer surplus is maximized and producer surplus is minimized.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Efficiency
21. The distinction between efficiency and equality can be described as follows:
a. Efficiency refers to maximizing the number of trades among buyers and sellers;
equality refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to minimizing the price paid by buyers; equality refers to
maximizing the gains from trade among buyers and sellers.
c. Efficiency refers to maximizing the size of the pie; equality refers to producing
a pie of a given size at the least possible cost.
d. Efficiency refers to maximizing the size of the pie; equality refers to distributing
the pie fairly among members of society.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency | Equality
22. If an allocation of resources is efficient, then
a. consumer surplus is maximized. b. producer surplus is maximized.
c. all potential gains from trade among buyers are sellers are being realized. d. the allocation achieves equality as well.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
23. Moving production from a high-cost producer to a low-cost producer will
a. lower total surplus. b. raise total surplus. c. lower producer surplus.
d. raise producer surplus but lower consumer surplus.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
24. Which of the following is correct
a. Efficiency deals with the size of the economic pie, and equality deals with how fairly
the pie is sliced.
b. Equality can be judged on positive grounds whereas efficiency requires normative
judgments.
c. Efficiency is more difficult to evaluate than equality.
d. Equality and efficiency are both maximized in a society when total surplus is
maximized.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
Table 7-9 Price $ $ $ $ $ $ $ Quantity Demanded 0 4 8 12 16 20 24 Quantity Supplied 12 10 8 6 4 2 0 25. Refer to Table 7-9. The equilibrium price is
a. $. b. $. c. $. d. $.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 1 REF: 7-3 LOC: Supply and demand
TOP: Efficiency
26. Refer to Table 7-9. At a price of $, total surplus is
a. more than it would be at the equilibrium price. b. less than it would be at the equilibrium price. c. the same as it would be at the equilibrium price.
d. There is insufficient information to make this determination.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
27. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. At
equilibrium, consumer surplus is a. $8. b. $12. c. $16. d. $32.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
28. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. At
equilibrium, producer surplus is a. $24. b. $32. c. $48. d. $.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
29. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. At
equilibrium, total surplus is a. $32. b. $48. c. $. d. $96.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
30. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. If the
price is $8 but only 4 units are bought and sold, consumer surplus will be a. $8. b. $12. c. $16. d. $18.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
31. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. If the
price is $8 but only 4 units are bought and sold, producer surplus will be a. $24. b. $28. c. $32. d. $40.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
32. Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. If the
price is $8 but only 4 units are bought and sold, total surplus will be a. $20. b. $30. c. $36. d. $40.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
Figure 7-12
Price1701601501401301201101009080706050403020101234567101112131415161718192021222324SupplyDemand25Quantity33. Refer to Figure 7-12. At the equilibrium price, consumer surplus is
a. $150. b. $200. c. $300. d. $500.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
34. Refer to Figure 7-12. At the equilibrium price, producer surplus is
a. $150. b. $200. c. $300. d. $500.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
35. Refer to Figure 7-12. At the equilibrium price, total surplus is
a. $150. b. $200. c. $300. d. $500.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
36. Refer to Figure 7-12. If the government imposes a price floor of $120 in this market, then
total surplus will decrease by a. $0. b. $125. c. $225. d. $600.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
37. Refer to Figure 7-12. If the government imposes a price ceiling of $120 in this market, then
total surplus will be a. $0. b. $125. c. $375. d. $500.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
38. Refer to Figure 7-12. If the government imposes a price floor of $70 in this market, then
total surplus will be a. $0. b. $125. c. $375. d. $500.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
Figure 7-13
PriceJSupplyKNDemandLMRQuantity39. Refer to Figure 7-13. Total surplus can be measured as the area
a. JNK. b. JNML. c. JRL. d. JNL.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
40. Refer to Figure 7-13. For quantities less than M, the value to the marginal buyer is
a. greater than the cost to the marginal seller, so increasing the quantity increases
total surplus.
b. less than the cost to the marginal seller, so increasing the quantity increases total
surplus.
c. greater than the cost to the marginal seller, so decreasing the quantity increases
total surplus.
d. less than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
41. Refer to Figure 7-13. For quantities greater than M, the value to the marginal buyer is
a. greater than the cost to the marginal seller, so increasing the quantity increases
total surplus.
b. less than the cost to the marginal seller, so increasing the quantity increases total
surplus.
c. greater than the cost to the marginal seller, so decreasing the quantity increases
total surplus.
d. less than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
Figure 7-14
42. Refer to Figure 7-14. Which area represents consumer surplus when the price is P1
a. A b. B c. C d. D
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
43. Refer to Figure 7-14. When the price is P1, area B represents
a. total surplus. b. producer surplus. c. consumer surplus. d. profits.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
44. Refer to Figure 7-14. Which area represents producer surplus when the price is P1
a. A b. B c. C d. D
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
45. Refer to Figure 7-14. When the price is P1, area C represents
a. total benefit. b. producer surplus. c. consumer surplus.
d. None of the above is correct.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
46. Refer to Figure 7-14. When the price is P1, area A represents
a. total benefit. b. producer surplus. c. consumer surplus.
d. None of the above is correct.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
47. Refer to Figure 7-14. When the price is P1, area B+C represents
a. total surplus. b. producer surplus. c. consumer surplus.
d. None of the above is correct.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
48. Refer to Figure 7-14. Which 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
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
Figure 7-15
Price2826242220181614121082102030405060708090100110120130140150160170QuantitySupplyDemand49. Refer to Figure 7-15. At the equilibrium price, consumer surplus is
a. $480. b. $0. c. $1,120. d. $1,280.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
50. Refer to Figure 7-15. If the price decreases from $22 to $16 due to a shift in the supply
curve, consumer surplus increases by a. $120. b. $360. c. $480. d. $600.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
51. Refer to Figure 7-15. At the equilibrium price, producer surplus is
a. $480. b. $0. c. $1,120. d. $1,280.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
52. Refer to Figure 7-15. At the equilibrium price, total surplus is
a. $480. b. $0. c. $1,120. d. $1,280.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
53. Refer to Figure 7-15. Assume demand increases and as a result, equilibrium price increases
to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the market would be a. $90. b. $210. c. $360. d. $480.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
. Refer to Figure 7-15. Assume demand increases and as a result, equilibrium price increases
to $22 and equilibrium quantity increases to 110. The increase in producer surplus to producers already in the market would be a. $90. b. $210. c. $360. d. $480.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
55. Refer to Figure 7-15. Assume demand increases and as a result, equilibrium price increases
to $22 and equilibrium quantity increases to 110. The increase in producer surplus would be a. $210. b. $360. c. $480. d. $570.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
56. Refer to Figure 7-15. The efficient price is
a. $22, and the efficient quantity is 40. b. $22, and the efficient quantity is 110. c. $16, and the efficient quantity is 80. d. $8, and the efficient quantity is 40.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 1 REF: 7-3 LOC: Supply and demand
TOP: Efficiency
57. Refer to Figure 7-15. If 110 units of the good are being bought and sold, then
a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to sellers is greater than the marginal value to buyers. d. producer surplus is greater than consumer surplus.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Efficiency
58. Refer to Figure 7-15. If 40 units of the good are being bought and sold, then
a. the marginal cost to sellers is equal to the marginal value to buyers. b. the marginal value to buyers is greater than the marginal cost to sellers. c. the marginal cost to sellers is greater than the marginal value to buyers. d. producer surplus would be greater than consumer surplus.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
Figure 7-16
P4PriceSupplyAP3BP2CHDP1FGQ1IDemandQ2Quantity59. Refer to Figure 7-16. The equilibrium price is
a. P1. b. P2. c. P3. d. P4.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 1 REF: 7-3 LOC: Supply and demand
TOP: Efficiency
60. Refer to Figure 7-16. At equilibrium, consumer surplus is represented by the area
a. A. b. A+B+C. c. D+H+F.
d. A+B+C+D+H+F.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
61. Refer to Figure 7-16. If the price were P3, consumer surplus would be represented by the area
a. A. b. A+B+C. c. D+H+F.
d. A+B+C+D+H+F.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
62. Refer to Figure 7-16. At equilibrium, producer surplus is represented by the area
a. F. b. F+G. c. D+H+F. d. D+H+F+G+I.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
63. Refer to Figure 7-16. If the price were P1, producer surplus would be represented by the area
a. F. b. F+G. c. D+H+F. d. D+H+F+G+I.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
. Refer to Figure 7-16. At equilibrium, total surplus is represented by the area
a. A+B+C. b. A+B+D+F. c. A+B+C+D+H+F. d. A+B+C+D+H+F+G+I.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
65. Refer to Figure 7-16. The efficient price-quantity combination is
a. P1 and Q1. b. P2 and Q2. c. P3 and Q1. d. P4 and 0.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 1 REF: 7-3 LOC: Supply and demand
TOP: Efficiency
Figure 7-17
66. Refer to Figure 7-17. At equilibrium, consumer surplus is measured by the area
a. ACG. b. AFG. c. KBG. d. CFG.
ANS: B DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
67. Refer to Figure 7-17. At equilibrium, consumer surplus is
a. $36. b. $72. c. $108. d. $144.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Consumer surplus
68. Refer to Figure 7-17. At equilibrium, producer surplus is measured by the area
a. ACG. b. AFG. c. KBG. d. CFG.
ANS: D DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
69. Refer to Figure 7-17. At equilibrium, producer surplus is
a. $36. b. $72. c. $108. d. $144.
ANS: B DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Producer surplus
70. Refer to Figure 7-17. At equilibrium, total surplus is measured by the area
a. ACG. b. AFG. c. KBG. d. CFG.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
71. Refer to Figure 7-17. At equilibrium, total surplus is
a. $36. b. $72. c. $108. d. $144.
ANS: C DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
72. Refer to Figure 7-17. The equilibrium allocation of resources is
a. efficient because total surplus is maximized at the equilibrium. b. efficient because consumer surplus is maximized at the equilibrium.
c. inefficient because consumer surplus is larger than producer surplus at the
equilibrium.
d. inefficient because total surplus is maximized when 10 units of output are produced
and sold.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
73. Refer to Figure 7-17. If 4 units of the good are produced and sold, then
a. the cost to sellers exceeds the value to buyers. b. producer surplus is maximized. c. total surplus is minimized.
d. the allocation of resources is inefficient.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
74. Refer to Figure 7-17. If 10 units of the good are produced and sold, then
a. the marginal cost to sellers exceeds the marginal value to buyers. b. producer surplus is maximized. c. total surplus is minimized.
d. the marginal value to buyers exceeds the marginal cost to sellers.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
Figure 7-18
PriceAHSupplyCP1BQ1KDemandQuantity75. Refer to Figure 7-18. Buyers who value this good more than the equilibrium price are represented
by which line segment a. AC. b. CK. c. BC. d. CH.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
76. Refer to Figure 7-18. Buyers who value this good less than the equilibrium price are represented
by which line segment a. AC. b. CK. c. BC. d. CH.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
77. Refer to Figure 7-18. Sellers whose costs are less than the equilibrium price are represented
by which line segment a. AC. b. CK. c. BC. d. CH.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
78. Refer to Figure 7-18. Sellers whose costs are greater than the equilibrium price are
represented by segment a. AC. b. CK. c. BC. d. CH.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
79. Refer to Figure 7-18. If the government mandated a price increase from P1 to a higher price,
then
a. total surplus would decrease. b. consumer surplus would increase.
c. total surplus would increase, since producer surplus would increase. d. total surplus would remain unchanged.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Total surplus
Figure 7-19
PriceSupplyP2P1P3DemandQ2Q1Q3Quantity80. Refer to Figure 7-19. At the quantity Q3,
a. the market is in equilibrium. b. consumer surplus is maximized.
c. the sum of consumer surplus and producer surplus is maximized.
d. the marginal value to buyers is less than the marginal cost to sellers.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
81. Refer to Figure 7-19. At the quantity Q2, the marginal value to buyers
a. and the marginal cost to sellers are both P2. b. is P2, and the marginal cost to sellers is P3. c. and the marginal cost to sellers are both P3. d. is P3, and the marginal cost to sellers is P2.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
82. Inefficiency exists in an economy when a good is
a. not being consumed by buyers who value it most highly. b. not distributed fairly among buyers.
c. not produced because buyers do not value it very highly. d. being produced with less than all available resources.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
83. Inefficiency exists in an economy when a good is
a. being produced with less than all available resources. b. not distributed fairly among buyers.
c. not being produced by the lowest-cost producers. d. being consumed by buyers who value it most highly.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
84. The \"invisible hand\" refers to
a. the marketplace guiding the self-interests of market participants into promoting
general economic well-being.
b. the fact that social planners sometimes have to intervene, even in perfectly
competitive markets, to make those markets more efficient.
c. the equality that results from market forces allocating the goods produced in the
market.
d. the automatic maximization of consumer surplus in free markets.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Invisible hand
85. The \"invisible hand\" is
a. used to describe the welfare system in the United States.
b. a concept developed by Adam Smith to describe the virtues of free markets. c. a concept used by . Keynes to describe the role of government in guiding the allocation
of resources in the economy.
d. a term used by some economists to characterize the role of government in an economy
— inevitable but invisible.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Invisible hand
86. Laissez-faire is a French expression which literally means
a. to make do.
b. to get involved. c. whatever works. d. allow them to do.
ANS: D DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Laissez-faire policy
87. The French expression used by free-market advocates, which literally translates as \"allow
them to do,\" is a. laissez-faire. b. je ne sais pas. c. si'l vous plait. d. tête-à-tête.
ANS: A DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Laissez-faire policy
88. If the government allowed a free market for transplant organs such as kidneys to exist, the
a. shortage of organs would be eliminated, and there would be no surplus of organs. b. shortage of organs would be eliminated, but a surplus of organs would develop. c. shortage of organs would persist.
d. overall well-being of society would remain unchanged.
ANS: A DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
. If the government allowed a free market for transplant organs such as kidneys to exist, critics
argue that such a market would
a. not reduce the shortage of organs.
b. benefit rich people but not poor people.
c. be inefficient because markets are not good at allocating scarce resources. d. be inferior to a plan imposed by a benevolent dictator.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
90. At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes
a. consumer surplus but not producer surplus. b. producer surplus but not consumer surplus. c. both consumer and producer surplus. d. neither consumer nor producer surplus.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Applicative
91. According to many economists, government restrictions on ticket scalping do all of the
following except
a. inconvenience the public.
b. reduce the audience for cultural and sports events. c. waste police officers’ time.
d. keep the cost of tickets to all consumers low.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
92. Economists tend to see ticket scalping as
a. a way for a few to profit without producing anything of value.
b. an inequitable interference in the orderly process of ticket distribution. c. a way of increasing the efficiency of ticket distribution.
d. an unproductive activity which should be made illegal everywhere.
ANS: C DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
93. Many economists believe that restrictions against ticket scalping result in each of the
following except
a. a smaller audience for cultural and sporting events. b. shorter lines at cultural and sporting events. c. less tax revenue for the state. d. an increase in ticket prices.
ANS: B DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
94. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the
minimum legal price for widgets to $6, producer surplus
a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
95. Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum
legal price for widgets to $4,
a. any possible increase in consumer surplus would be larger than the loss of producer
surplus.
b. any possible increase in consumer surplus would be smaller than the loss of producer
surplus.
c. the resulting increase in producer surplus would be larger than any possible loss
of consumer surplus.
d. the resulting increase in producer surplus would be smaller than any possible loss
of consumer surplus.
ANS: B DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Analytical
96. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the
minimum legal price for widgets to $6,
a. the resulting increase in consumer surplus would be larger than any possible loss
of producer surplus.
b. the resulting increase in consumer surplus would be smaller than any possible loss
of producer surplus.
c. any possible increase in producer surplus would be larger than the loss of consumer
surplus.
d. any possible increase in producer surplus would be smaller than the loss of consumer
surplus.
ANS: D DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Analytical
97. Total surplus in a market will increase when the government
a. imposes a binding price floor or a binding price ceiling on that market. b. imposes a tax on that market. c. Both a and b are correct. d. Neither a nor b is correct.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
98. Total surplus in a market will increase when the government
a. imposes a tax on that market.
b. imposes a binding price floor on that market. c. removes a binding price ceiling from that market. d. None of the above is correct.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 3 REF: 7-3 LOC: Supply and demand
TOP: Total surplus
99. If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase
in demand will
a. increase producer surplus. b. reduce producer surplus. c. not affect producer surplus. d. Any of the above are possible.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Producer surplus
100. If a market is allowed to move freely to its equilibrium price and quantity, then an increase
in supply will
a. increase consumer surplus. b. reduce consumer surplus. c. not affect consumer surplus. d. Any of the above are possible.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2 REF: 7-3 LOC: Supply and demand
TOP: Consumer surplus
101. A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would
imply that
a. both the value of MP3 players to consumers and the cost of producing MP3 players has
increased.
b. both the value of MP3 players to consumers and the cost of producing MP3 players has
decreased.
c. the value of MP3 players to consumers has decreased, and the cost of producing MP3
players has increased.
d. the value of MP3 players to consumers has increased, and the cost of producing MP3
players has decreased.
ANS: D DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Efficiency
102. Raisin bran and milk are complementary goods. A decrease in the price of raisins will
a. increase consumer surplus in the market for raisin bran and decrease producer surplus
in the market for milk. b. increase consumer surplus in the market for raisin bran and increase producer surplus
in the market for milk. c. decrease consumer surplus in the market for raisin bran and increase producer surplus
in the market for milk. d. decrease consumer surplus in the market for raisin bran and decrease producer surplus
in the market for milk.
ANS: B DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Applicative
103. Coffee and tea are substitutes. Bad weather that sharply reduces the coffee bean harvest would
a. increase consumer surplus in the market for coffee and decrease producer surplus in
the market for tea.
b. increase consumer surplus in the market for coffee and increase producer surplus in
the market for tea.
c. decrease consumer surplus in the market for coffee and increase producer surplus in
the market for tea.
d. decrease consumer surplus in the market for coffee and decrease producer surplus in
the market for tea.
ANS: C DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Applicative
104. PlayStations and PlaySation games are complementary goods. A technological advance in the
production of PlayStations will
a. increase consumer surplus in the market for PlayStations and decrease producer
surplus in the market for PlayStation games.
b. increase consumer surplus in the market for PlayStations and increase producer
surplus in the market for PlayStation games.
c. decrease consumer surplus in the market for PlayStations and increase producer
surplus in the market for PlayStation games.
d. decrease consumer surplus in the market for PlayStations and decrease producer
surplus in the market for PlayStation games.
ANS: B DIF: 3 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Producer surplus
MSC: Applicative
Sec04 - Consumers, Producers, and the Efficiency of Markets - Conclusion
MULTIPLE CHOICE
1. Which of the following statements is not correct
a. An invisible hand leads buyers and sellers to an equilibrium that maximizes total
surplus.
b. Market power can cause markets to be inefficient. c. Externalities can cause markets to be inefficient.
d. The invisible hand can remedy most if not all types of market failures.
ANS: D DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Market failure | Externalities MSC: Interpretive
2. Inefficiency can be caused in a market by the presence of
a. market power. b. externalities.
c. imperfectly competitive markets. d. All of the above are correct.
ANS: D DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Market failure
3. Market power refers to the
a. side effects that may occur in a market.
b. government regulations imposed on the sellers in a market. c. ability of market participants to influence price.
d. forces of supply and demand in determining equilibrium price.
ANS: C DIF: 1 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Market power
4. Externalities are
a. side effects passed on to a party other than the buyers and sellers in the market. b. side effects of government intervention in markets.
c. external forces that cause the price of a good to be higher than it otherwise would
be.
d. external forces that help establish equilibrium price.
ANS: A DIF: 1 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Externalities
5. The decisions of buyers and sellers that affect people who are not participants in the market
create
a. market power. b. externalities. c. profiteering.
d. market equilibrium.
ANS: B DIF: 1 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Externalities
6. Market failure is the inability of
a. buyers to interact harmoniously with sellers in the market. b. a market to establish an equilibrium price. c. buyers to place a value on the good or service.
d. some unregulated markets to allocate resources efficiently.
ANS: D DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Definitional
TOP: Market failure
7. When markets fail, public policy can
a. do nothing to improve the situation.
b. potentially remedy the problem and increase economic efficiency. c. always remedy the problem and increase economic efficiency.
d. in theory, remedy the problem, but in practice, public policy has proven to be
ineffective.
ANS: B DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand MSC: Interpretive
TOP: Market failure
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