Question 1

Figure 7-19 
-Refer to Figure 7-19.At the equilibrium price,consumer surplus is
A)$100.
B)$200.
C)$50.
D)$450.

Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay for a good and the price they actually pay. In Figure 7-19, the equilibrium price is $50. At this price, consumers are willing to pay $150 for the good, but they only have to pay $50. Therefore, consumer surplus is $100.

Question 2

Figure 7-18 
-Refer to Figure 7-18.If total surplus is $240 and consumer surplus is
A)$100,then the price of the good is $130.
B)$130,then the price of the good is $120.
C)$160,then the price of the good is $100.
D)$120,then the price of the good is $90.

Accepted Answer

Total surplus is the sum of consumer surplus and producer surplus. If consumer surplus is $160 and total surplus is $240, then producer surplus is $80. The price of the good is determined by the equilibrium where consumer and producer surplus are maximized, which corresponds to the given consumer surplus and total surplus.

Question 3

Figure 7-20 
-Refer to Figure 7-20.For quantities less than M,the value to the marginal buyer is
A)greater than the cost to the marginal seller,so increasing the quantity increases total surplus.
B)less than the cost to the marginal seller,so increasing the quantity increases total surplus.
C)greater than the cost to the marginal seller,so decreasing the quantity increases total surplus.
D)less than the cost to the marginal seller,so decreasing the quantity increases total surplus.

Accepted Answer

When the quantity is less than M, the marginal cost is lower than the marginal value of the good, so the marginal buyer is willing to pay more than what the marginal seller incurs. Therefore, increasing the quantity will allow more buyers to benefit from the lower price, which increases total surplus.

Question 4

Moving production from a high-cost producer to a low-cost producer will
A)lower total surplus.
B)raise total surplus.
C)lower producer surplus.
D)raise producer surplus but lower consumer surplus.

Accepted Answer

Moving production from a high-cost producer to a low-cost producer will generally decrease the cost of production, leading to lower prices and higher consumer surplus. It can also increase producer surplus if the lower production costs result in increased profits. Overall, this will result in a higher total surplus.

Question 5

Figure 7-21 
-Refer to Figure 7-21.Which area represents producer surplus when the price is P1?
A)A
B)B
C)C
D)D

Accepted Answer

The answer of Figure 7-21 
-Refer to Figure 7-21.Which area...

Question 6

Figure 7-19 
-Refer to Figure 7-19.If the government imposes a price floor of $55 in this market,then total surplus will be
A)$137.50.
B)$125.00.
C)$187.50.
D)$275.00.

Accepted Answer

The answer of Figure 7-19 
-Refer to Figure 7-19.If the...

Question 7

Figure 7-20 
-Refer to Figure 7-20.For quantities greater than M,the value to the marginal buyer is
A)greater than the cost to the marginal seller,so increasing the quantity increases total surplus.
B)less than the cost to the marginal seller,so increasing the quantity increases total surplus.
C)greater than the cost to the marginal seller,so decreasing the quantity increases total surplus.
D)less than the cost to the marginal seller,so decreasing the quantity increases total surplus.

Accepted Answer

For quantities greater than M, the value to the marginal buyer is less than the cost to the marginal seller, so decreasing the quantity increases total surplus.

Question 8

Figure 7-18 
-Refer to Figure 7-18.Total surplus amounts to $500 if consumer surplus amounts to
A)$290 and if the price of the good is $150.
B)$300 and if the price of the good is $130.
C)$275 and if the price of the good is $160.
D)$400 and if the price of the good is $100.

Accepted Answer

Total surplus is the sum of consumer surplus and producer surplus. If consumer surplus is $290 and total surplus is $500, then producer surplus must be $210, which is consistent with the given information.

Question 9

Figure 7-21 
-Refer to Figure 7-21.When the price is P1,area B represents
A)total surplus.
B)producer surplus.
C)consumer surplus.
D)profits.

Accepted Answer

Area B in the graph represents consumer surplus, which is defined as the difference between what consumers are willing to pay for a good and what they actually pay. Therefore, when the price is P1, area B represents consumer surplus.

Question 10

Figure 7-21 
-Refer to Figure 7-21.When the price is P1,area C represents
A)total benefit.
B)producer surplus.
C)consumer surplus.
D)None of the above is correct.

Accepted Answer

The answer of Figure 7-21 
-Refer to Figure 7-21.When the...

Question 11

Figure 7-19 
-Refer to Figure 7-19.If the government imposes a price floor of $55 in this market,then total surplus will be
A)$100.00 higher than it would be without the price floor.
B)$50.00 lower than it would be without the price floor.
C)$125.00 lower than it would be without the price floor.
D)$62.50 lower than it would be without the price floor.

Accepted Answer

A price floor set above the equilibrium price leads to a surplus, reducing total surplus due to inefficient allocation of resources. The loss in total surplus is typically represented by the deadweight loss, which in this case is $62.50.

Question 12

Which of the following is correct?
A)Efficiency deals with the size of the economic pie,and equality deals with how fairly the pie is sliced.
B)Equality can be judged on positive grounds whereas efficiency requires normative judgments.
C)Efficiency is more difficult to evaluate than equality.
D)Equality and efficiency are both maximized in a society when total surplus is maximized.

Accepted Answer

Efficiency refers to the overall size or growth of the economy, while equality refers to the distribution of resources or income within that economy. The statement in option A accurately reflects this distinction. Option B is incorrect because both efficiency and equality require normative judgments. Option C is also incorrect because evaluating efficiency can be done using objective measures, such as productivity or output per unit of input. Option D is incorrect because there may be trade-offs between efficiency and equality, so maximizing one does not necessarily maximize the other.

Question 13

Figure 7-19 
-Refer to Figure 7-19.If the government imposes a price ceiling of $55 in this market,then total surplus will be
A)$187.50.
B)$125.00.
C)$250.00.
D)$266.67.

Accepted Answer

The answer of Figure 7-19 
-Refer to Figure 7-19.If the...

Question 14

Figure 7-21 
-Refer to Figure 7-21.Which area represents consumer surplus when the price is P1?
A)A
B)B
C)C
D)D

Accepted Answer

The answer of Figure 7-21 
-Refer to Figure 7-21.Which area...

Question 15

Figure 7-19 
-Refer to Figure 7-19.At the equilibrium price,total surplus is
A)$125.
B)$450.
C)$250.
D)$500.

Accepted Answer

At the equilibrium price, consumer surplus is the area above the price line and below the demand curve (triangle AEF) and producer surplus is the area below the price line and above the supply curve (triangle BED). Therefore, total surplus is the sum of consumer and producer surplus, which is (1/2)(10)(25) + (1/2)(10)(25) = $250.

Question 16

Figure 7-21 
-Refer to Figure 7-21.When the price is P1,area A represents
A)total benefit.
B)producer surplus.
C)consumer surplus.
D)None of the above is correct.

Accepted Answer

The answer of Figure 7-21 
-Refer to Figure 7-21.When the...

Question 17

Figure 7-18 -Refer to Figure 7-18.Suppose the willingness to pay of the marginal buyer of the 3^rd unit is $125.Then total surplus is maximized if A)1 unit of the good is produced and sold. B)2 units of the good are produced and sold. C)3 units of the good are produced and sold. D)4 units of the good are produced and sold.

Accepted Answer

Total surplus is maximized when the marginal buyer's willingness to pay equals the marginal seller's willingness to sell. In this case, the marginal seller's willingness to sell the 3rd unit is $40, which is less than the marginal buyer's willingness to pay of $125. Therefore, producing and selling 3 units of the good would maximize total surplus. Any additional units produced and sold would result in the marginal buyer's willingness to pay being less than the marginal seller's willingness to sell, reducing total surplus.

Question 18

If an allocation of resources is efficient,then
A)consumer surplus is maximized.
B)producer surplus is maximized.
C)all potential gains from trade among buyers are sellers are being realized.
D)the allocation achieves equality as well.

Accepted Answer

An efficient allocation of resources means that resources are being utilized in the best way possible to maximize the total welfare of society. This includes all potential gains from trade among buyers and sellers being realized, and not just maximizing consumer or producer surplus. However, achieving equality is not necessarily a requirement for an efficient allocation of resources.

Question 19

Figure 7-20 
-Refer to Figure 7-20.Total surplus can be measured as the area
A)JNK.
B)JNML.
C)JRL.
D)JNL.

Accepted Answer

The answer of Figure 7-20 
-Refer to Figure 7-20.Total surplus...

Question 20

Figure 7-19 
-Refer to Figure 7-19.At the equilibrium price,producer surplus is
A)$300.
B)$150.
C)$450.
D)$125.

Accepted Answer

The answer of Figure 7-19 
-Refer to Figure 7-19.At the...

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

Figure 7-19 -Refer to Figure 7-19.At the equilibrium price,consumer surplus is

Figure 7-18 -Refer to Figure 7-18.If total surplus is $240 and consumer surplus is

Figure 7-20 -Refer to Figure 7-20.For quantities less than M,the value to the marginal buyer is

Moving production from a high-cost producer to a low-cost producer will

Figure 7-21 -Refer to Figure 7-21.Which area represents producer surplus when the price is P1?

Figure 7-19 -Refer to Figure 7-19.If the government imposes a price floor of $55 in this market,then total surplus will be

Figure 7-20 -Refer to Figure 7-20.For quantities greater than M,the value to the marginal buyer is

Figure 7-18 -Refer to Figure 7-18.Total surplus amounts to $500 if consumer surplus amounts to

Figure 7-21 -Refer to Figure 7-21.When the price is P1,area B represents

Figure 7-21 -Refer to Figure 7-21.When the price is P1,area C represents

Figure 7-19 -Refer to Figure 7-19.If the government imposes a price floor of $55 in this market,then total surplus will be

Which of the following is correct?

Figure 7-19 -Refer to Figure 7-19.If the government imposes a price ceiling of $55 in this market,then total surplus will be

Figure 7-21 -Refer to Figure 7-21.Which area represents consumer surplus when the price is P1?

Figure 7-19 -Refer to Figure 7-19.At the equilibrium price,total surplus is

Figure 7-21 -Refer to Figure 7-21.When the price is P1,area A represents

Figure 7-18 -Refer to Figure 7-18.Suppose the willingness to pay of the marginal buyer of the 3rd unit is $125.Then total surplus is maximized if

If an allocation of resources is efficient,then

Figure 7-20 -Refer to Figure 7-20.Total surplus can be measured as the area

Figure 7-19 -Refer to Figure 7-19.At the equilibrium price,producer surplus is

Figure 7-18 -Refer to Figure 7-18.Suppose the willingness to pay of the marginal buyer of the 3^rd unit is $125.Then total surplus is maximized if