Question 1

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.

Accepted Answer

This is the correct definition of consumer surplus.

Question 2

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

Accepted Answer

According to the law of demand, as the price of a good increases, the quantity demanded decreases. Therefore, on a demand curve, the price represents the maximum price that the marginal buyer (i.e. the last buyer who is willing to purchase the good at that given price) is willing to pay for the next unit of the good. This is also known as the marginal willingness to pay.

Question 3

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

Accepted Answer

An increase in supply shifts the supply curve to the right, lowering the equilibrium price and increasing the quantity supplied. This results in a larger area of consumer surplus, as consumers are able to purchase the good at a lower price than before.

Question 4

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

Accepted Answer

Consumer surplus is the difference between the maximum price that consumers are willing to pay for a good and the actual price that they pay. This can be represented as the area between the demand curve and the equilibrium price, as consumers are willing to pay more than the equilibrium price for some units of the good.

Question 5

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.

Accepted Answer

The definition of willingness to pay is accurately stated as the maximum amount a buyer is willing to pay for a good, indicating the value they place on it.

Question 6

Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.

Accepted Answer

Your willingness to pay is $130, as consumer surplus is the difference between what you are willing to pay and what you actually pay.

Question 7

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

Accepted Answer

When the government imposes a binding price floor in a market, it causes the price to be higher than the equilibrium price. This reduces the quantity demanded and increases the quantity supplied, resulting in a surplus of goods that are not sold. This reduces consumer surplus as consumers have to pay a higher price for the same quantity of goods.

Question 8

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

Accepted Answer

Consumer surplus is measured as the area between the demand curve and the price level, up to the quantity demanded.

Question 9

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.

Accepted Answer

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

Question 10

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

Accepted Answer

Consumer surplus is the difference between the price a consumer is willing to pay and the actual price paid. In this case, Darby is willing to pay $50 but only pays $40, so her consumer surplus is $10 ($50 - $40 = $10).

Question 11

The lower the price, the lower the consumer surplus, all else equal.

Accepted Answer

Consumer surplus increases as the price decreases because consumers are paying less than what they are willing to pay for a good or service, thus increasing the difference between their willingness to pay and the actual price.

Question 12

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

Accepted Answer

Consumer surplus represents the difference between what a buyer is willing to pay for a good or service and what they actually pay for it, showing the benefit they receive from participating in the market.

Question 13

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.

Accepted Answer

Consumer surplus is the difference between the willingness to pay for a good and the actual price paid for it, not the other way around. Therefore, the formula for consumer surplus is: willingness to pay - actual price paid = consumer surplus.

Question 14

If Rosa is willing to pay $450 for hockey tickets and has consumer surplus of $175, the price of the tickets is $625.

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay (in this case, $450) and what they actually pay (unknown in this scenario). Therefore, we cannot determine the price of the tickets based on the information given.

Question 15

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

Accepted Answer

A price floor is a minimum price set by the government higher than the equilibrium price. This creates a surplus of supply and a shortage of demand, leading to a decrease in consumer surplus as consumers are forced to pay a higher price for the same quantity of goods.

Question 16

Welfare economics is the study of the welfare system.

Accepted Answer

Welfare economics is the study of how to allocate resources in order to maximize the well-being or welfare of individuals and society as a whole. It is not specifically the study of the welfare system as a policy or program.

Question 17

All else equal, an increase in demand will always increase consumer surplus.

Accepted Answer

An increase in demand typically raises prices, which can reduce consumer surplus because consumers are paying more for the same quantity of goods or services. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.

Question 18

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.

Accepted Answer

When there is an increase in supply that reduces market price, existing buyers enjoy a higher consumer surplus as they are able to purchase the same product at a lower price. Additionally, the lower price may also attract new buyers to enter the market, thereby increasing the overall consumer surplus.

Question 19

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.

Accepted Answer

Susie's consumer surplus is $3,000 because it is the difference between the maximum amount she was willing to pay ($11,000) and the actual amount she paid ($8,000).

Question 20

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

Accepted Answer

Her consumer surplus is $10, because consumer surplus is the difference between what a consumer is willing to pay ($50) and the actual price paid ($40).

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