Question 1

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.

Accepted Answer

A decrease in the lemon crop would decrease the supply of lemons. This would cause the equilibrium price to increase and the quantity demanded to decrease, reducing consumer surplus in the market for lemons.

Question 2

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.

Accepted Answer

When the price of a good decreases, consumers can purchase the same quantity of the good for a lower price. This results in a larger consumer surplus, as they are paying less than they would be willing to pay for that same quantity of the good.

Question 3

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.

Accepted Answer

The answer of Motor oil and gasoline are complements. If...

Question 4

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.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price paid. If the price of a good increases, consumers will be willing to pay less for that good and the consumer surplus will decrease.

Question 5

When there is a technological advance in the pork 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.

Accepted Answer

Technological advances in the pork industry can lead to increased efficiency in production, which can lower costs for producers. This can lead to a decrease in price for consumers, resulting in an increase in consumer surplus.

Question 6

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.

Accepted Answer

When the price of oak lumber increases, the cost of production for oak cabinets increases, resulting in an increase in the price of oak cabinets. As a result, consumers will be willing to buy fewer oak cabinets at the higher price, and the consumer surplus in the market for oak cabinets will decrease.

Question 7

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

Accepted Answer

A technological improvement in the production of the good will result in lower prices for consumers, increasing their surplus. Option A (increase in the production cost of the good) will lead to an increase in price, reducing consumer surplus. Option C (decrease in the number of sellers of the good) will lead to a decrease in the supply of the good, resulting in higher prices for consumers, reducing consumer surplus. Option D (the imposition of a binding price floor in the market) will prevent prices from reaching their market equilibrium, leading to a reduction in consumer surplus.

Question 8

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

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay (in this case, $3,000) and what they actually pay. So, if Jeff experienced consumer surplus of $700, then he paid $2,300 ($3,000 - $700) for his computer. Therefore, the answer is B.

Question 9

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.

Accepted Answer

When the price of a good or service falls, the total value of purchases after the price change will be higher as more quantity will be demanded. Therefore, the total value of purchases before and after the price change will not be the same.

Question 10

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.

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what the consumer actually pays. If these two amounts are equal, the consumer surplus is zero.

Question 11

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.

Accepted Answer

The answer of Denise values a stainless steel dishwasher for...

Question 12

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.

Accepted Answer

Cameron's maximum willingness to pay was $750 but he only paid $575, so his consumer surplus is $175.

Question 13

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.

Accepted Answer

If Dallas values strawberries more than before, it means he is willing to pay a higher price for them. However, if the market price remains the same, he is now getting more value for his money and his consumer surplus increases. Therefore, Dallas's consumer surplus would increase. Buying fewer strawberries would not necessarily be wise as he now values them more and may want to purchase more at the same price.

Question 14

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.

Accepted Answer

The answer of When the demand for a good increases...

Question 15

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 A)the marginal buyer's willingness to pay for the 100^th unit of the good is $25. B)the sum of the five buyers' willingness to pay for the 100^th unit of the good is $25. C)the average of the five buyers' willingness to pay for the 100^th unit of the good is $25. D)all of the five buyers are willing to pay at least $25 for the 100^th unit of the good.

Accepted Answer

The marginal buyer is the buyer who is willing to pay exactly the market price for the good, which in this case is $25 for the 100th unit. This does not imply anything about the sum, average, or minimum willingness to pay of all buyers, just the willingness to pay of the buyer at the margin.

Question 16

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.

Accepted Answer

The answer of Suppose televisions are a normal good and...

Question 17

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.

Accepted Answer

If the price you paid for the last tomato was equal to your willingness to pay, then your consumer surplus on that tomato is zero. This means that if you were to buy another tomato at the same price, your total consumer surplus for the week would also be zero. Therefore, buying more tomatoes before the end of the week (choice A) would not make sense. It is not possible to determine whether you have already bought too many tomatoes (choice B) without knowing how many tomatoes you have already bought and how much you are willing to pay for each additional tomato.

Question 18

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

Accepted Answer

Imposition of a binding price floor in the market will cause an increase in the price of the good. This will result in a decrease in consumer surplus as consumers will have to pay a higher price for the same quantity of the good.

Question 19

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.

Accepted Answer

The answer of Ray buys a new tractor for $118,000....

Question 20

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.

Accepted Answer

When the cost of producing sofas decreases, producers are willing to sell the product at a lower price. This leads to a decrease in the market price of the sofa. As a result, consumers will be able to purchase the product at a lower price and enjoy a higher consumer surplus. Therefore, consumer surplus in the sofa market will increase.

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

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?

All else equal, what happens to consumer surplus if the price of a good decreases?

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

All else equal, what happens to consumer surplus if the price of a good increases?

When there is a technological advance in the pork industry, consumer surplus in that market will

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

Which of the following will cause an increase in consumer surplus?

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?

Which of the following is not true when the price of a good or service falls?

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

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise

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

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

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

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

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

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

Which of the following will cause a decrease in consumer surplus?

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is

If the cost of producing sofas decreases, then consumer surplus in the sofa market will