Question 1

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

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to supply a good or service and the actual price received. Therefore, if the price is lower, the producer surplus will also be lower as there is a smaller difference between the price at which they are willing to supply and the actual price received.

Question 2

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.

Accepted Answer

This statement is an accurate description of the concept of opportunity cost and the behavior of sellers in a market. A seller will continue to produce and sell a product as long as the price they receive is higher than the cost of the resources and time needed to produce it, which represents the opportunity cost of using those resources for other purposes. If the price falls below this threshold, the seller will not be able to earn a profit and may choose to exit the market or reduce production.

Question 3

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.

Accepted Answer

Connie's producer surplus is the difference between her cost of production and the market price. If she can clean 100 windows at a cost of $1 per window and sell her services for $3 per window, her total revenue is $300. If her cost is $100 ($1 per window x 100 windows), her producer surplus is $200 ($300 - $100).

Question 4

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

Accepted Answer

In a competitive market, consumers are price-sensitive and typically buy from the producer that offers the product at the lowest price. Therefore, producers who can offer their product at a lower price than their competitors are likely to generate more sales.

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

This is a correct definition of producer surplus. It represents the profit that a seller makes from selling a good or service.

Question 7

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

Accepted Answer

If a binding price ceiling is removed, the price in the market will increase, leading to an increase in producer surplus.

Question 8

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

Accepted Answer

Producer surplus is the difference between the price a seller receives for a good and the minimum price they would be willing to accept. Therefore, it measures the benefit to sellers from receiving a price above their costs.

Question 9

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

Accepted Answer

The price given by the supply curve at any quantity represents the cost of the marginal seller, which is the cost of the highest-cost seller willing to sell at that price, not the lowest-cost seller.

Question 10

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

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a certain good or service. When a price ceiling is put in place, it tends to create a shortage of the product, as the lower price incentivizes consumers to buy more, and producers to supply less. This shortage leads to a decrease in producer surplus, as they are unable to charge the higher market price.

Question 11

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

Accepted Answer

An increase in demand will lead to an increase in the market price, which in turn will increase the producer's willingness to supply the good or service. This increase in supply will lead to an increase in producer surplus, ceteris paribus.

Question 12

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

Accepted Answer

The area below the demand curve and above the price level measures consumer surplus, while the area above the supply curve and below the price level measures producer surplus in a market.

Question 13

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

Accepted Answer

A decrease in demand will cause a decrease in producer surplus, as producers will have to lower their prices in order to sell their goods. This results in a smaller difference between the market price and the cost of production, reducing the producer surplus.

Question 14

An increase in price increases consumer surplus.

Accepted Answer

An increase in price decreases consumer surplus. This is because consumers are willing to pay less for a good when the price increases, which means they lose some of the surplus they would have gained if the price had remained lower.

Question 15

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

Accepted Answer

Producer surplus is equal to the selling price minus the cost of production. In this case, $40 - $5 = $35. Therefore, Jake's producer surplus is $35.

Question 16

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

Accepted Answer

This is true according to the economic concept of producer surplus, which is the difference between the price at which producers are willing and able to sell a product and the price they actually receive. The area between the price and supply curve represents the actual revenue received by the producers, while the area above the supply curve and below the price represents the additional revenue (or surplus) they receive due to selling the product at a higher price than they would have been willing to accept.

Question 17

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

Accepted Answer

Producer surplus is the difference between the price a producer receives and the cost of production. In this case, the producer surplus is $35, not $45.

Question 18

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.

Accepted Answer

Producer surplus is the difference between what a producer is willing to accept for a good or service versus what they actually receive. If Connie is willing to clean windows at $1 per window but receives $3 per window, her surplus per window is $2. For 100 windows, her producer surplus would be $200, not $100.

Question 19

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.

Accepted Answer

When demand increases and market price increases, producers are able to charge higher prices for their goods, increasing their overall revenue and producer surplus. Additionally, new sellers may enter the market as it becomes more profitable, further increasing producer surplus.

Question 20

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

Accepted Answer

Consumer surplus is calculated by subtracting the price consumers actually pay from their willingness to pay for a good or service. Therefore, knowing both the willingness to pay and price is necessary to calculate consumer surplus.

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

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

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.

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.

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

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

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

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

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

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

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

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

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

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

An increase in price increases consumer surplus.

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

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

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

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.

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.

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