Question 1

Economists claim that measuring society's welfare as CS + PS
A) is inappropriate since ultimately everyone is a consumer.
B) is valid only when the same person could be either a consumer or a producer.
C) treats the gains to consumers and producers equally.
D) is not commonly accepted.

Accepted Answer

Measuring society's welfare as the sum of consumer surplus (CS) and producer surplus (PS) treats the gains to consumers and producers equally, which is a common and accepted approach among economists. This is because both consumers and producers contribute to the market and the overall economy. Option A is not appropriate since not everyone is a consumer, and option B is incorrect as CS and PS are not dependent on the same person being a consumer or producer. Option D is also not accurate as the CS + PS approach is widely used and recognized in economics.

Question 2

Producer surplus equals total revenue minus the sum of all marginal cost.

Accepted Answer

The sum of all marginal cost equals total variable cost.Total revenue minus total variable cost equals producer surplus.

Question 3

-Suppose the market supply curve for wheat is shown in the above figure.Calculate the producer surplus when price is $2 per bushel.If legislation mandates that the price be $1 per bushel,what is the resulting loss in producer surplus?

Accepted Answer

The answer of 
-Suppose the market supply curve for wheat...

Question 4

Producer surplus is the sum of the profits earned by all firms in a market.

Accepted Answer

This definition ignores fixed costs.Producer surplus minus fixed costs equals profits.

Question 5

Producer surplus equals
A) total revenue minus total variable cost.
B) total revenue minus the sum of all marginal cost.
C) profit plus fixed cost.
D) All of the above.

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. All the given options (A, B, C) are different ways of conceptualizing this difference, taking into account costs, revenues, and profits.

Question 6

Producer surplus is equal to
A) the area under the supply curve.
B) the difference between price and average cost for all units sold.
C) the difference between price and marginal cost for all units sold.
D) the firm's profit when fixed costs exist.

Accepted Answer

Producer surplus is the difference between the price a producer receives and the cost of production (in this case, marginal cost). Therefore, the correct answer is C, the difference between price and marginal cost for all units sold. Option A is incorrect because the area under the supply curve only represents total revenue, not producer surplus. Option B is incorrect because average cost includes fixed costs, which are not relevant in calculating producer surplus. Option D is also incorrect because producer surplus is not the same as the firm's profit as it does not take into account fixed costs.

Question 7

In the short run,if a firm operates,it earns a profit of $500.The fixed costs of the firm are $100.This firm has a producer surplus of
A) $500.
B) $100.
C) $400.
D) $600.

Accepted Answer

The answer of In the short run,if a firm operates,it...

Question 8

Ann and Bill each spend $30 per month on cigarettes when the price is $1 per pack.Draw a graph to illustrate that the consumer with the less elastic demand will suffer the greater loss of consumer surplus when the price of cigarettes increases.Explain and label the figure.

Accepted Answer

The answer of Ann and Bill each spend $30 per...

Question 9

In the long-run equilibrium in perfect competition,
A) producer surplus is positive.
B) producer surplus is negative.
C) producer surplus is greater than consumer surplus.
D) producer surplus is less than consumer surplus.

Accepted Answer

In long-run equilibrium in perfect competition, producer surplus is equal to zero because firms are earning only normal profits. Consumer surplus, on the other hand, is maximized as goods are being sold at the lowest possible price. Therefore, producer surplus is less than consumer surplus.

Question 10

If a firm enjoys producer surplus in perfectly competitive Market A of $1000 and would enjoy producer surplus in perfectly competitive Market B of $1200,the firm would consider moving to Market B if
A) fixed costs are greater than $100 in Market A.
B) fixed costs are less than $200 in Market B.
C) fixed costs are less than $300 but greater than $200 in Market B.
D) fixed costs in Market B are less than the fixed costs in Market A plus $200.

Accepted Answer

The firm would only consider moving to Market B if the increase in producer surplus ($1200-$1000=$200) was greater than the increase in fixed costs. Therefore, fixed costs in Market B would need to be less than the fixed costs in Market A plus $200. Choice D satisfies this condition.

Question 11

When is the profit a firm earns equal to the producer surplus? Explain.

Accepted Answer

The answer of When is the profit a firm earns...

Question 12

Assume the price of tomatoes increases.Which of the following causes would correspond to greater producer surplus?
A) an increase in supply
B) an increase in costs
C) a decrease in supply
D) an increase in demand

Accepted Answer

An increase in demand for tomatoes, given the price increase, would lead to greater producer surplus because producers are able to sell more tomatoes at a higher price, thus increasing their earnings above their costs.

Question 13

-Figure 9.6 shows an individual's demand curve for time per month spent telecommunicating while driving (talking on the car phone.)A car phone is useless except for talking with somebody who is not in the car.If calls are priced at ten cents per minute,what is the consumer surplus derived from talking? What is the most this person would pay for the car phone? Explain.

Accepted Answer

The answer of 
-Figure 9.6 shows an individual's demand curve...

Question 14

In a perfectly competitive market the long-run demand and supply curves are Q = 12 - P and Q = 5P respectively.Producer surplus in this market equals
A) 0.
B) 5.
C) 10.
D) It cannot be determined without more information.

Accepted Answer

In a perfectly competitive market, producer surplus is the area above the supply curve and below the market price. To find the equilibrium price and quantity, we set the demand and supply curves equal to each other:

12 - P = 5P

Solving for P:

12 = 6P

P = 2

Substituting into either the demand or supply curve:

Q = 12 - 2 = 10

So the equilibrium price is $2 and the equilibrium quantity is 10.

To find producer surplus, we need to calculate the area below the demand curve and above the supply curve up to the equilibrium price:

Producer surplus = (1/2) x (10 - 5) x 10 = 25

Therefore, the correct answer is C) 10.

Question 15

Advocates of steel tariffs to protect U.S.steel firms realize that when imposing such tariffs,the gains of firms are outweighed by the losses to consumers..This implies that
A) such advocates value producer surplus more than consumer surplus.
B) such advocates want to help consumers.
C) such advocates value consumer surplus more than producer surplus.
D) such advocates value producer surplus and consumer surplus equally.

Accepted Answer

Advocates of steel tariffs prioritize the benefits for steel firms over the costs to consumers. This suggests that they value producer surplus (the difference between a firm's costs of production and the price it receives) more than consumer surplus (the difference between the price a consumer pays and the value they receive from a good). Therefore, they prioritize protecting the domestic steel industry rather than promoting consumer welfare.

Question 16

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals
A) 50.
B) 25.
C) 12.50.
D) 10.

Accepted Answer

To calculate the producer surplus, we need to find the area below the price line and above the supply curve. At a price of 10, the quantity supplied by the market can be found by setting p = 10 in the supply curve:

10 = 5 + Q

Q = 5

Therefore, at a price of 10, the quantity supplied by the market is 5 units.

To find the producer surplus, we need to find the area below the price line (10) and above the supply curve (which is a straight line with intercept 5 and slope 1):

Producer surplus = (10 - 5) * 5 / 2

Producer surplus = 12.50

Therefore, the correct answer is (C).

Question 17

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is
A) $5,000.
B) $15,000.
C) $20,000.
D) not able to be calculated from the information given.

Accepted Answer

Producer surplus is the difference between the lowest price a seller is willing to accept and the price they actually receive. Jones was willing to accept $200,000 and received $205,000, so his producer surplus is $5,000.

Question 18

The difference between producer surplus and profit is always the associated with
A) opportunity costs.
B) total costs.
C) variable costs.
D) fixed costs.

Accepted Answer

The answer of The difference between producer surplus and profit...

Question 19

Assume government policy increases the demand for corn.
A) The consumer surplus of corn buyers will increase.
B) The producer surplus of corn growers will decrease.
C) The producer surplus of corn growers will increase.
D) The producer surplus of corn growers will not change.

Accepted Answer

When government policy increases the demand for corn, the price of corn is likely to increase, leading to an increase in producer surplus for corn growers. This is because they can sell their corn at a higher price, which expands the gap between the market price and the cost of producing corn, resulting in a larger surplus for the producers. However, the increase in demand would not necessarily lead to a decrease in the consumer surplus of corn buyers or a decrease in the producer surplus of corn growers, so options A, B, and D can be eliminated.

Question 20

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals
A) 50.
B) 25.
C) 12.50.
D) 10.

Accepted Answer

At a price of 10, the quantity supplied is Q = 5. 
To compute producer surplus, we need to find the area above the supply curve and below the price, which is a triangle with base 5 and height (10-5) = 5. 
The area of a triangle is base times height divided by 2, so producer surplus equals (5 x 5) / 2 = 12.50. Therefore, the correct choice is C.

Quiz 9: Applying the Competitive Model

Economists claim that measuring society's welfare as CS + PS

Producer surplus equals total revenue minus the sum of all marginal cost.

-Suppose the market supply curve for wheat is shown in the above figure.Calculate the producer surplus when price is $2 per bushel.If legislation mandates that the price be $1 per bushel,what is the resulting loss in producer surplus?

Producer surplus is the sum of the profits earned by all firms in a market.

Producer surplus equals

Producer surplus is equal to

In the short run,if a firm operates,it earns a profit of $500.The fixed costs of the firm are $100.This firm has a producer surplus of

Ann and Bill each spend $30 per month on cigarettes when the price is $1 per pack.Draw a graph to illustrate that the consumer with the less elastic demand will suffer the greater loss of consumer surplus when the price of cigarettes increases.Explain and label the figure.

In the long-run equilibrium in perfect competition,

If a firm enjoys producer surplus in perfectly competitive Market A of $1000 and would enjoy producer surplus in perfectly competitive Market B of $1200,the firm would consider moving to Market B if

When is the profit a firm earns equal to the producer surplus? Explain.

Assume the price of tomatoes increases.Which of the following causes would correspond to greater producer surplus?

In a perfectly competitive market the long-run demand and supply curves are Q = 12 - P and Q = 5P respectively.Producer surplus in this market equals

Advocates of steel tariffs to protect U.S.steel firms realize that when imposing such tariffs,the gains of firms are outweighed by the losses to consumers..This implies that

Suppose the market supply curve is p = 5Q.At a price of 10,producer surplus equals

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Jones' producer surplus is

The difference between producer surplus and profit is always the associated with

Assume government policy increases the demand for corn.

Suppose the market supply curve is p = 5 + Q.At a price of 10,producer surplus equals