Quiz 7: Consumers, Producers and the Efficiency of Markets

Welfare economics is the study of the welfare system.

The highest price a buyer is prepared to spend on a good, is that buyer's willingness to pay.

The appropriate measure for buyers' valuation of a good is how willing they are to pay.

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.

When a good is purchased, the difference between what a consumer is willing to pay and what they actually have to pay is consumer surplus.

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

Consumer surplus is closely related to the demand curve for a product.

To measure the total consumer surplus in a market, the area above the demand curve is added to the area below the price.

The height of the demand curve measures the value buyers place on the good, as measured by their willingness to pay for it.

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.

Suppose a market clears and this generates an equilibrium price and quantity. An important outcome of this equilibrium is that it maximises the total benefits to both buyers and sellers.

When the market price of a good falls, consumer surplus increases because (1) the consumer surplus received by existing buyers becomes larger and (2) more buyers enter the market at the lower price.

In all markets consumer surplus measures the economic wellbeing in that market.

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.

In a competitive market, sales go to those producers who are willing to supply the product with the best after-sales service.

The opportunity cost for a seller should only include their cash expenses on inputs.

A supply curve provides a graphical measure of a producer's true willingness to sell.

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

Lee can sell coffee at $1 per cup. The market equilibrium price of coffee is $2.50. Suppose Lee sells 200 cups of coffee. The producer surplus captured by Lee is $500.

Any goods not sold in a vegetable market at the end of the day are producer surplus.

At all quantity levels the price given by the supply curve shows the cost of the lowest cost seller.

The producer surplus in a market is the area above the price plus the area below the demand curve.

Producer surplus measures the cost to sellers of participating in a market.

The tools of consumer surplus and producer surplus enables us to determine whether free-market allocation of resources is desirable.

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

Total surplus = Value to buyers - Costs to sellers.

Consumer surplus = Price of the good.

An allocation of resources that maximises total surplus is said to be equitable.

If some buyers and sellers are prevented from trading, the efficient allocation will not occur.

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

Free markets allocate (1) the supply of goods to the buyers who value them most highly and (2) the demand for goods to the sellers who can produce them at least cost.

Total surplus in a market can be measured as the area below the supply curve and the area above the demand curve.

Economists believe that government control of markets is most often the best way to organise economic activity because they lead to an efficient allocation of resources.

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 wellbeing.

Laissez-faire is a French expression that literally means 'let the market fare well'.

Many economists believe that a market in human organs would lead to both an efficient allocation and fair distribution of organs.

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Jean wants to sell her camera. Greg offers her $250. Lee offers her $300. Jean decides to sell the camera to Greg because he made the first offer. This is an example of an efficient market transaction.

Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs.

Ticket scalping leads to a reduction in economic efficiency and therefore to a reduction in economic wellbeing.

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

Restrictions against ticket scalping actually drive up the cost of many tickets.

Legalising ticket scalping would make everyone worse off.

In order for market outcomes to maximise the total benefits to buyers and sellers, the markets must be perfectly competitive.

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Pollution and other externalities, while bothersome, do not interfere with efficiency.

Market failure refers to firms that go bankrupt because they do not produce the goods and services that consumers want.

Public policy can improve market efficiency when there are instances of market failure.

A group of people are bidding on an internet auction for a used car. Each bidder will not bid more than a maximum amount that is unique to them. This maximum is called: A) a strategic price B) willingness to pay C) consumer surplus D) price elasticity of demand

Willingness to pay measures the: A) amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it B) amount a seller actually receives for a good minus the minimum amount the seller is willing to accept C) maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept D) maximum amount that a buyer will pay for a good

A consumer's willingness to pay measures: A) the cost of a good to the buyer B) how much a buyer values a good C) how much a buyer has to pay to receive a good D) how much a seller receives from the sale of a good

A consumer's willingness to pay is: A) always equal to the market price B) the maximum amount he or she is prepared to pay for a good C) the average amount he or she is prepared to pay for a good D) always more than the market price

Lee is willing and able to pay $300 for a particular MP3 player but is able to buy it for $199. Lee's consumer surplus is: A) $0 B) $101 C) $199 D) $300

If Brock is willing to pay $500 for a new suit but is able to buy the suit for $350, his consumer surplus is: A) $150 B) $350 C) $500 D) $850

Caitlin would be willing to pay $50 to see Les Misérables but buys a ticket for only $30. Caitlin values the performance at: A) $20 B) $30 C) $50 D) $80

Michele is willing to pay $15 to see St Trinians for the fourth time. She finds a theatre showing St Trinians for $8.00. Michele's consumer surplus is: A) $0 B) $7 C) $8 D) $15

Sharon is bidding on a new camera on an internet auction. She values the camera at $300 and wins the auction with a bid of $300, therefore: A) Sharon's willingness to pay is $300 and her consumer surplus is 0 B) Sharon's willingness to pay is $300 and her consumer surplus is $300 C) Sharon's willingness to pay is $150 and her consumer surplus is $150 D) Sharon's willingness to pay is $150 and her consumer surplus is $0

Amy buys a new dog for $150. She receives consumer surplus of $100 on her purchase. Her willingness to pay is: A) $50 B) $100 C) $150 D) $250

Gene buys a new medium-format camera for $20 000. He receives consumer surplus of $6000 on his purchase. Gene's willingness to pay is: A) $6000 B) $14 000 C) $20 000 D) $26 000

Gayle decides that she would pay as much as $3000 for a new laptop computer. She buys the computer and realises a consumer surplus of $700. How much did Gayle pay for her computer? A) $700 B) $2300 C) $3000 D) $3700

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 $525. Cameron's consumer surplus from the purchase is: A) $225 B) $525 C) $750 D) $1275

Amy buys a new computer for her studies for $1200. She receives consumer surplus of $300 from the purchase. How much does Amy value her computer? A) $300 B) $900 C) $1200 D) $1500

Consumer surplus is the: A) quantity of a good consumers get free B) amount a consumer has to pay less the amount the consumer was willing to pay C) amount a consumer is willing to pay less the amount the consumer actually pays D) total value of a good to a consumer

Suppose hail storms damage vineyards in South Australia. The supply of grapes to local winemakers declines. What happens to consumer surplus in the market for South Australian wine? A) it increases B) there is no change to the consumer surplus C) it decreases D) the overall effect is ambiguous as consumer surplus could rise or fall

If you pay a price exactly equal to your willingness to pay, then: A) your willingness to pay is less than your consumer surplus B). your consumer surplus is negative C) you have no consumer surplus D) you place little value on the good

A demand curve reflects each of the following EXCEPT the: A) ability of buyers to obtain the quantity they desire B) willingness to pay of all buyers in the market C) value each buyer in the market places on the good D) highest price buyers are willing to pay for each quantity

NARRBEGIN: Table 7-1 Table 7-1 This table refers to five possible buyers' willingness to pay for good Z. -Refer to Table 7-1. If the market price is $5.50, the consumer surplus in the market will be: A) $3.00 B) $4.50 C) $15.50 D) $21.00

NARRBEGIN: Table 7-1 Table 7-1 This table refers to five possible buyers' willingness to pay for good Z. -Refer to Table 7-1. If the price of good Z is $4.99, who will not purchase the good? A) Jeremy and Sarah B) John, Jeremy and Sarah C) Cassie, Jamie and John D) Cassie and Jamie

NARRBEGIN: Table 7-1 Table 7-1 This table refers to five possible buyers' willingness to pay for good Z. -Refer to Table 7-1. Which of the following is NOT true? A) the table is the demand schedule for good Z B) the demand schedule represented by the table shows the willingness to pay of the marginal buyer C) at a price of $4.00, total consumer surplus in the market will be $9.00 D) when the price is $3.50, each person will have a positive consumer surplus

Consumer surplus equals the: A) value to buyers less the amount paid by buyers B) amount received by sellers less the costs of sellers C) value to buyers plus the amount paid by buyers D) amount received by sellers plus the costs of sellers

The area below a demand curve and above the price measures: A) willingness to pay B) total surplus C) consumer surplus D) producer surplus

If the cost of producing automobiles increases, consumer surplus will: A) increase B) decrease C) remain constant D) increase, then decrease

The cost of producing digital cameras decreases. As a result, the consumer surplus associated with digital cameras: A) decreases B) increases C) doesn't change D) could increase or decrease but the overall effect is ambiguous

Other things being equal, if the price of a good falls, the consumer surplus: A) decreases B) increases C) is unchanged D) may increase, decrease or remain unchanged

Economists generally agree that the goal in developing the concept of consumer surplus is to: A) make positive judgments about the desirability of market outcomes B) make normative judgments about the desirability of market outcomes C) measure the profit of firms producing the good D) assess the forgone value when the price is too high

NARRBEGIN: 7-1 Graph 7-1 -Refer to Graph 7-1. What area represents consumer surplus when the price is P₁? A) A B) B C) C D) D

NARRBEGIN: 7-1 Graph 7-1 -Refer to Graph 7-1. What area represents producer surplus when the price is P₁? A) A B) B C) C D) D

NARRBEGIN: 7-1 Graph 7-1 -Refer to Graph 7-1. What area represents total surplus in the market when the price is P₁? A) A + B B) B + C C) C + D D) A + B + C + D

NARRBEGIN: 7-2 Graph 7-2 -Refer to Graph 7-2. When the price is P₁, consumer surplus is: A) A B) A + B C) A + B + C D) A + B + D

NARRBEGIN: 7-2 Graph 7-2 -Refer to Graph 7-2. At the higher price P₂, consumer surplus is: A) A B) B C) A + B D) A + B + C

NARRBEGIN: 7-2 Graph 7-2 -Refer to Graph 7-2. When the price rises from P₁ to P₂, consumer surplus: A) increases by an amount equal to A B) decreases by an amount equal to B + C C) increases by an amount equal to B + C D) decreases by an amount equal to C

NARRBEGIN: 7-2 Graph 7-2 -According to Graph 7-2, area C represents: A) the decrease in consumer surplus that results from a downward-sloping demand curve B) consumer surplus to new consumers who enter the market when the price falls from P₂ to P₁ C) an increase in producer surplus when the quantity sold increases from Q₂ to Q₁ D) a decrease in consumer surplus to each consumer in the market

NARRBEGIN: 7-2 Graph 7-2 -Refer to Graph 7-2. When the price rises from P₁ to P₂, which of the following is NOT true? A) the buyers who still buy the good are worse off because they now pay more B) some buyers leave the market because they are not willing to buy the good at the higher price C) the total value of what is now purchased by buyers is actually higher D) consumer surplus in the market falls

Suppose the price of music downloads falls. Which statement is not true? A) buyers who were already downloading music are better off B) some new customers will begin music downloads that had previously thought it was too expensive C) the total consumer surplus in the market decreases D) there will be an increase in the number of songs downloaded

Lucy often buys fish and is able to buy it for less than she is willing-to-pay. She later learns that fish has more health benefits than she realised. She now values fish even more than before. If the market price of fish does not change then: A) Lucy's consumer surplus could go up or down B) Lucy's consumer surplus will decrease C) Lucy's consumer surplus will be unaffected because the price has not changed D) Lucy's consumer surplus will increase

In most markets consumer surplus: A) reflects economic wellbeing B) reflects the total value that buyers place on goods or services C) reflects the benefit to buyers mandated by government D) all of the above are correct

Out-of-pocket expenses plus the value of the seller's own resources used in production are considered to be: A) the seller's total revenue B) the seller's consumer surplus C) producer surplus D) the cost of production

The economic meaning of cost is: A) a seller's willingness to sell B) a seller's consumer surplus C) the price the buyer pays to obtain the good D) a buyer's producer surplus

A seller would be willing to sell a product ONLY if the price received is: A) less than the cost of production B) at least as great as the cost of production C) equal to the cost of production D) at least double the cost of production

Welfare economics is the study of: A) how the allocation of resources affects economic wellbeing B) why poor people have low incomes C) the social welfare program adopted by the government D) how charities deliver welfare to the needy

Positive analysis refers to what: A) is B) should be C) could be D) is politically correct

Normative analysis refers to what: A) is B) should be C) maximises efficiency D) is politically correct

At the equilibrium of supply and demand in a market: A) costs of producers are minimised B) total benefits received by buyers and sellers are maximised C) total benefits received by buyers and sellers are minimised D) expenditures of buyers are maximised

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises: A) costs of the seller B) the total welfare of buyers and sellers C) the expenditure of buyers D) the profit of buyers

Suppose that the demand for coffee rises. This means that the producer surplus for coffee will: A) increase B) decrease C) increase or decrease because the effect is ambiguous D) neither increase nor decrease because the price hasn't changed

If demand increases, the price of a product, as well as producer surplus: A) increases B) decreases C) remains the same D) may increase, decrease or remain the same

The Health Ministry announces that eating chocolate increases tooth decay. As a result, the equilibrium market price _____ and producer surplus of chocolate _____. A) increases and increases B) increases and decreases C) decreases and decreases D) decreases and increases

Suppose consumer income increases. If wine is a normal good, what will happen to the equilibrium price and producer surplus? A) both the equilibrium price and the producer surplus will decrease B) both the equilibrium price and the producer surplus will increase C) the equilibrium price will decrease and the producer surplus will increase D) the equilibrium price will increase and the producer surplus will decrease

Producer surplus equals: A) value to buyers - amount paid by buyers B) amount received by sellers - costs of sellers C) value to buyers - costs of sellers D) value to buyers - amount paid by buyers + amount received by sellers - costs of sellers

Which of the following would be true of the seller's cost? A) the seller would be eager to sell her services at a price higher than her cost B) the seller would refuse to sell her services at a price lower than her cost C) the seller would be indifferent about selling her services at a price equal to her cost D) all of the above are true

Producer surplus is the: A) amount represented by the area under the demand curve B) amount a seller is paid less the cost of production C) amount represented by the area under the supply curve D) amount a seller is paid plus the cost of production

Producer surplus measures all of the following EXCEPT the: A) total value of a good to sellers B) amount sellers receive above the minimum they would accept C) benefit to sellers of participating in a market D) amount sellers are paid less the amount they were willing to accept

NARRBEGIN: Table 7-2 Table 7-2 The costs of five possible sellers -Refer to Table 7-2. If the market price is $1000, the producer surplus in the market will be: A) $700 B) $750 C) $2250 D) $3700

NARRBEGIN: Table 7-2 Table 7-2 The costs of five possible sellers -Refer to Table 7-2. If the market price is $1000, the total cost in the market will be: A) $3700 B) $2700 C) $2250 D) $1500

NARRBEGIN: Table 7-2 Table 7-2 The costs of five possible sellers -Refer to Table 7-2. If the price is $1000, Landon's producer surplus will be: A) $1000 B) $750 C) $500 D) $25

NARRBEGIN: Table 7-2 Table 7-2 The costs of five possible sellers -Refer to Table 7-2. If the price is $900 who will be willing to supply the product? A) Kyle and Nathan B) Kyle, Nathan and Cheslea C) Cheslea, Hillary and Landon D) Hillary and Landon

The marginal seller is the seller who: A) cannot compete with the other sellers in the market B) would leave the market first if the price were any lower C) can produce at the lowest cost D) has the greatest producer surplus

Producer surplus is the area: A) under the supply curve B) between the supply and demand curves C) below the price and above the supply curve D) under the demand curve and above the price

NARRBEGIN: 7-3 Graph 7-3 -According to Graph 7-3, when the price is P₂, producer surplus is: A) A B) A + C C) A + B + C D) D + E

NARRBEGIN: 7-3 Graph 7-3 -According to Graph 7-3, at the price P₁, producer surplus is: A) A B) A + B C) C D) A + B + C

NARRBEGIN: 7-3 Graph 7-3 -According to Graph 7-3, when the price falls from P₂ to P₁, producer surplus: A) decreases by an amount equal to A B) decreases by an amount equal to A + C C) decreases by an amount equal to A + B D) increases by an amount equal to A + B

NARRBEGIN: 7-3 Graph 7-3 -According to Graph 7-3, area B represents: A) producer surplus to new producers entering the market as the result of price rising from P₁ to P₂ B) the increase in consumer surplus that results from an upward-sloping supply curve C) a decrease in producer surplus to each producer in the market D) an increase in total surplus when sellers are willing and able to increase supply from Q₁ to Q₂

NARRBEGIN: 7-3 Graph 7-3 -Refer to Graph 7-3. When the price falls from P₂ to P₁, which of the following is NOT true? A) the sellers who still sell the good are worse off because they now receive less B) some sellers leave the market because they are not willing to sell the good at the lower price C) the total cost of what is now sold by sellers is actually higher D) all of the above are correct

Producer surplus measures the: A) wellbeing of sellers B) wellbeing of society as a whole C) goods and services that the seller cannot find a buyer for D) wellbeing of buyers

Donald produces nails at a cost of $200 per ton. If he sells the nails for $500 per ton, his producer surplus is: A) $200 per ton B) $300 per ton C) $500 per ton D) $700 per ton

Peter owns a sawmill and produces timber for construction. He sells the timber for $300 per cubic metre. His production costs are $140 per cubic metre. His producer surplus is: A) $140 per cubic metre B) $300 per cubic metre C) $160 per cubic metre D) none of the above

If Dale sells a shirt for $40, and his producer surplus from the sale is $23, his cost must have been: A) $63 B) $40 C) $23 D) $17

Gene earns $15,000 for shooting alligators under permit in Louisiana. His producer surplus is $5,000. His willingness to sell is: A) 0 B) $5000 C) $10 000 D) $15 000

Costa and Soula sell lemonade on the corner for $0.10 per glass. Their producer surplus is $0.06 per glass. Their willingness to sell is: A) $0.16 B) $0.10 C) $0.06 D) $0.04

Khan is a financial analyst and provides a consultancy service. He charges clients $2000 per day. His producer surplus is $1200. Khan's willingness to sell is: A) $0 B) $800 C) $1200 D) $2000

Nick's willingness to sell his homemade chocolate chip biscuits is $4 per dozen. He sells them and realises a producer surplus of $4 per dozen. Nick sells his biscuits for: A) $2 a dozen B) $8 a dozen C) $10 a dozen D) $12 a dozen

NARRBEGIN: Table 7-3 Table 7-3 Market supply and demand for good X -Refer to Table 7-3. The equilibrium or market-clearing price is: A) $10.00 B) $8.00 C) $6.00 D) $4.00

NARRBEGIN: Table 7-3 Table 7-3 Market supply and demand for good X -Refer to Table 7-3. At a price of $4.00, total surplus would be: A) more than it would be at the equilibrium price B) less than it would be at the equilibrium price C) the same as it would be at the equilibrium price D) there is insufficient information to say

We can say that the allocation of resources is efficient if: A) producer surplus is maximised B) consumer surplus is maximised C) total surplus is maximised D) none of the above is correct

Which of the following is NOT correct? A) consumer surplus = value to buyers - Amount paid by buyers B) producer surplus = amount received by sellers - Cost of sellers C) total surplus = value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers D) total surplus = Value to sellers - Costs of sellers

Total surplus in a market is: A) the total costs to sellers of providing the goods less the total value to buyers of the goods B) always less than consumer surplus plus producer surplus C) the total value to buyers of the goods less the costs to sellers of providing those goods D) always greater than consumer surplus plus producer surplus

The total surplus in a market equals: A) the value to buyers plus the amount paid by buyers B) the amount received by sellers less the costs of sellers C) the value to buyers less the costs of sellers D) zero, because producer and consumer surplus cancel each other out

Total surplus in a market equals: A) value to buyers - amount paid by buyers B) amount received by sellers - costs of sellers C) producer surplus - consumer surplus D) consumer surplus + producer surplus

An efficient allocation of resources would be characterised by: A) a good being produced by the sellers with lowest cost B) there is a shortage at the current market price C) a good is not being bought by the buyers the highest value D) all of the above are correct

NARRBEGIN: 7-4 Graph 7-4 -In Graph 7-4, the equilibrium (market-clearing) price is: A) P₁ B) P₂ C) P₃ D) P₄

NARRBEGIN: 7-4 Graph 7-4 -In Graph 7-4, at the market-clearing equilibrium, total consumer surplus is represented by the area: A) A B) A + B + C C) D + E + F D) A + B + C + D + E + F

NARRBEGIN: 7-4 Graph 7-4 -In Graph 7-4, at the market-clearing equilibrium, total producer surplus is represented by the area: A) F B) F + G C) D + E + F D) D + E + F + G + H

NARRBEGIN: 7-4 Graph 7-4 -In Graph 7-4, at the market-clearing equilibrium, total surplus is represented by the area: A) A + B + C B) A + B + D + F C) A + B + C + D + E + D) A + B + C + D + E + F + G + H F)

NARRBEGIN: 7-4 Graph 7-4 -In Graph 7-4, the efficient price-quantity combination is: A) P₁ - Q₁ B) P₂ - Q₂ C) P₃ - Q₁ D) none of the combinations are efficient

NARRBEGIN: 7-5 Graph 7-5 -In Graph 7-5, at the quantity Q₂: A) the market is in equilibrium B) willingness to pay is greater than willingness to sell C) consumer surplus plus producer surplus is maximised D) willingness to pay is less than willingness to sell

NARRBEGIN: 7-5 Graph 7-5 -In Graph 7-5, for the quantity Q₃, willingness to buy: A) and willingness to sell are both P₂ B) is P₁ and willingness to sell is P₃ C) and willingness to sell are both P₃ D) is P₃ and willingness to sell is P₂

When a market is in equilibrium but too high for some consumers: A) the government will intervene to set the correct prices B) the price determines which buyers and sellers participate in the market, and those unable to afford the good will opt out C) those buyers who value the good less than the price choose to buy the good D) those sellers whose costs are more than the price choose to produce and sell the good

NARRBEGIN: 7-6 Graph 7-6 -In Graph 7-6, beyond the equilibrium quantity in a free market: A) the value to buyers is greater than the cost to sellers B) the cost to sellers is greater than the value to buyers C) cost to sellers is equal to the value to buyers D) producer surplus would be greater than consumer surplus

The 'invisible hand' refers to the: A) marketplace guiding the self-interests of market participants into promoting general economic wellbeing B) marketplace as a place where government looks out for the self-interests of individual participants in the market C) equity that results from market forces allocating the goods produced in the market D) automatic maximisation of consumer surplus in free markets

The 'invisible hand': A) is the name of an old radio program B) is a concept used by Adam Smith to describe the virtues of free markets C) is a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy D) always rewards individuals for using the wellbeing of society as the basis for economic decision making

Laissez-faire is a French expression that literally means: A) 'to make profits' B) 'no more taxes' C) 'allow them to do' D) 'we need protection'

Many economists believe that a market for human organs would lead to an: A) inefficient allocation of organs but a fair distribution of organs B) inefficient allocation of organs and an unfair distribution of organs C) efficient allocation of organs but an unfair distribution of organs D) efficient allocation of organs and a fair distribution of organs

Economists tend to see ticket scalping as: A) a way for a few to profit while producing nothing of value B) an inequitable interference in the orderly process of ticket distribution C) a way of increasing the efficiency of ticket distribution D) an unproductive activity which should be made illegal everywhere

According to many economists, government restrictions on ticket scalping do all of the following EXCEPT: A) inconvenience the public B) reduce the audience for cultural and sports events C) waste the police's time D) keep the cost of tickets to consumers low

Market power refers to the: A) company that generates electricity to firms B) buyers and sellers being price takers C) ability of to influence price D) market situation that only ever happens with a monopoly seller

Externalities are: A) external forces that help establish equilibrium price B) external forces that cause the price of a good to be higher than it otherwise would be C) side effects of government intervention in markets D) side effects passed on to a party other than the buyers and sellers in the market

Pollution is a classic example of: A) cost minimisation by firms B) corporate greed C) market failure D) an efficient market outcome

When markets fail, public policy can: A) do nothing to improve the situation B) potentially remedy the problem and increase economic efficiency C) always remedy the problem and increase economic efficiency D) in theory, remedy the problem, but in practice, has proven to be ineffective

How does consumer surplus differ from the market price?

What is the relationship between the demand curve and the willingness to pay?

Megan loves donuts. The table shown reflects the value Megan places on each donut she eats: a. Use this information to construct Megan's demand curve for donuts. b. If the price of doughnuts is $0.20, how many donuts will Megan buy? c. Show Megan's consumer surplus on your graph. How much consumer surplus would she have at a price of $0.20? d. If the price of doughnuts rose to $0.40, how many donuts would she purchase now? What would happen to Megan's consumer surplus? Show this change on your graph.

Table A -Use the information in Table A to fill in the blanks in Table B

Table A -Use the information in Table A to graph a demand curve for this product. Table B

Suppose the price of good X increases. Assume that nothing else changes. Explain what will happen to the consumer surplus in this case and use a demand-curve to illustrate your answer.

NARRBEGIN: Table 7-5 Table 7-5 -Refer to Table 7-5. Given the information about Fred and Frieda's willingness to pay for pizza, calculate the consumer surplus for Fred and for Frieda if the price of pizza is: a. $13. b. $10. c. $8. d. $6. e. $4.

Suppose the price of music downloads falls. Explain what will happen to: a. existing buyers who were already downloading music. b. potential buyers who have not yet begun downloading music. c. the consumer surplus in this market. d. the number of downloads that will now occur.

Suppose the price of DVD rentals increases. Explain what will happen to: a. potential renters who are illegally downloading movies. b. renters who have not yet begun downloading movies. c. the consumer surplus in the DVD rental market. d. the number of downloads that will now occur.

How does producer surplus differ from the market price?

What is the relationship between the willingness to sell and the supply curve?

Table C -Use the information in the Table C to fill in the blanks of TableD. Table D

Use the information in Table C to graph a supply curve for this product.

Suppose there is a price decrease. Assuming that nothing else changes, explain what happens to producer surplus and illustrate your answer using a supply curve.

Given the following equations, show how equation 1 can be used to derive equation 2: 1. Total surplus = Consumer surplus + Producer surplus 2. Total surplus = Value to buyers - Cost to sellers

What was the 'invisible hand' doctrine that Adam Smith discussed in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations?

What is the total surplus in a market, and why might it be a good measure of economic wellbeing? Using a demand-supply diagram, show the areas representing total surplus.

In what way(s) are free-market outcomes, where supply equals demand, beneficial to society?

NARRBEGIN: 7-7 Graph 7-7 -Refer to Graph 7-7. Explain why this graph verifies the fact that the market equilibrium (quantity) maximises the sum of producer and consumer surplus.

Using a demand-supply diagram, completing the labels, identify the following areas: a. consumer surplus. b. producer surplus. c. total surplus.

Australian parrots are smuggled to overseas markets where they can command very high prices. An important innovation for smugglers was the egg vest. This meant that more parrots could be smuggled with higher survival rates and less risk of detection. If this lowered the price of black market Australian parrots, does the increase in consumer surplus necessarily represent a welfare improvement to society?

Antonio's Pizza has the following willingness to sell pizza: Determine Antonio's producer surplus at a price of: a. $10. b. $8. c. $6. d. $4. e. $2.

NARRBEGIN: Table 7-7 Table 7-7 Antonio's Pizza -Based on Table 7-7, if Fred and Frieda are the only buyers in the pizza market, and Antonio's is the only seller, what is the: a. market equilibrium price? b. market equilibrium quantity? c. total consumer surplus at the market equilibrium? d. total producer surplus at the market equilibrium? e. total benefit to society of this market?

NARRBEGIN: Table 7-7 Table 7-7 Antonio's Pizza -Refer to Table 7-7. Is the pizza market described in the above tables efficient? Explain. Is it equitable? Explain.

Would a market that was characterised by unregulated pollution be classed as efficient? Why or why not?

What are the economic arguments in favour of allowing ticket scalping?

Many countries allow people to visit national parks, lakes or rivers for free. If a good is free in the sense of having zero market price, does this mean that the consumer surplus is also zero?

Does a zero market price mean there is no benefit to society from providing or maintaining these natural areas? The existence of consumer surplus means that there will be a benefit to society from these areas.