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

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

Welfare economics is the study of the welfare system.

Question 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.

Question 7

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

Question 8

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

Question 9

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

Question 10

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.

Question 11

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

Question 12

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.

Question 13

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

Question 14

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.

Question 15

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

Question 16

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

Question 17

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

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.

Question 22

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

Question 23

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

Question 24

All else equal, a decrease in demand will cause an increase in producer surplus.

Question 25

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.

Question 26

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35.

Question 27

All else equal, an increase in demand will cause an increase in producer surplus.

Question 28

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

Question 29

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

Question 30

Producer surplus measures the benefit to sellers from receiving a price above their costs.

Question 31

An increase in price increases consumer surplus.

Question 32

Producer surplus is the cost of production minus the amount a seller is paid.

Question 33

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.

Question 34

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

Question 35

Producer surplus is the amount a seller is paid minus the cost of production.

Question 36

The area below the demand curve and above the supply curve measures the producer surplus in a market.

Question 37

At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.

Question 38

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.

Question 39

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Question 40

The area below the price and above the supply curve measures the producer surplus in a market.

Question 41

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.

Question 42

Total surplus = Value to buyers - Costs to sellers.

Question 43

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.

Question 44

If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good.

Question 45

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 15 + (1/3) Q^S . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.

Question 46

Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.

Question 47

The current policy on kidney donation effectively sets a price ceiling of zero.

Question 48

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.

Question 49

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.

Question 50

Total surplus in a market is consumer surplus minus producer surplus.

Question 51

Ticket scalping can increase total surplus in the market for tickets to sporting events.

Question 52

The cost of production plus producer surplus is the price a seller is paid.

Question 53

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 10 + (1/4)Q^S . If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.

Question 54

Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200.

Question 55

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.

Question 56

Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.

Question 57

Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs to society of this activity outweigh the benefits.

Question 58

Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is $40 for this transaction, then the total surplus would be $15.

Question 59

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.

Question 60

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

Question 61

Figure 7-10
​
Refer to Figure 7-10. If the market equilibrium price falls from $120 to $80, how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?

Question 62

Table 7-13
The following table shows the cost of producing a good for the only four producers in a market.

Refer to Table 7-13. If the market price is $28, which producers will supply units in the market?

Question 63

Table 7-12
The following table shows the willingness to pay for a good for the only four consumers in a market.

Refer to Table 7-12. If the price of the good is $20, how many units will be demanded?

Question 64

Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

Question 65

What do economists call the highest amount a consumer will pay to purchase a good?

Question 66

Table 7-12
The following table shows the willingness to pay for a good for the only four consumers in a market.

Refer to Table 7-12. If the price of the good is $20, how much is the total consumer surplus?

Question 67

Scenario 7-1
Suppose market demand is given by the equation

Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, how much additional consumer surplus do consumers initially in the market at the $10 price receive?

Question 68

Scenario 7-1
Suppose market demand is given by the equation

Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, how much consumer surplus do consumers entering the market after the price drop receive?

Question 69

When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

Question 70

Figure 7-10
​
Refer to Figure 7-10. If the market equilibrium price is $120, how much is total consumer surplus?

Question 71

Figure 7-10
​
Refer to Figure 7-10. If the market equilibrium price falls from $120 to $80, how much consumer surplus do consumers entering the market after the price drop receive?

Question 72

Scenario 7-1
Suppose market demand is given by the equation

Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, what is the change in total consumer surplus in the market?

Question 73

If John's willingness to pay for a good is $20 and the price of the good is $15, how much is John's consumer surplus from purchasing the good?

Question 74

Market power and externalities are examples of market failures.

Question 75

In order to conclude that markets are efficient, we assume that they are perfectly competitive.

Question 76

Markets will always allocate resources efficiently.

Question 77

Scenario 7-1
Suppose market demand is given by the equation

Refer to Scenario 7-1. If the market equilibrium price rises from $10 to $15, what is the change in total consumer surplus in the market?

Question 78

Figure 7-10
​
Refer to Figure 7-10. If the market equilibrium price falls from $120 to $80, how much is the change in total consumer surplus in the market?

Question 79

Scenario 7-1
Suppose market demand is given by the equation

Refer to Scenario 7-1. If the market equilibrium price is $10, how much is total consumer surplus in this market?

Question 80

Figure 7-10
​
Suppose John's cost for performing some carpentry work is $120. If John is paid $200 for the carpentry work, what is his producer surplus?