Question 1

A demand curve reflects each of the following except the

Accepted Answer

A)  willingness to pay of all buyers in the market.
B)  value each buyer in the market places on the good.
C)  highest price buyers are willing to pay for each quantity.
D)  ability of buyers to obtain the quantity they desire.E) B) and C)
F) None of the above

Question 2

Which of the following will cause an increase in consumer surplus?

Accepted Answer

A)  an increase in the production cost of the good
B)  a technological improvement in the production of the good
C)  a decrease in the number of sellers of the good
D)  the imposition of a binding price floor in the marketE) C) and D)
F) A) and B)

Question 3

Answer each of the following questions about supply and producer surplus.
a.What is producer surplus,and how is it measured?
b.What is the relationship between the cost to sellers and the supply curve?
c.Other things equal,what happens to producer surplus when the price of a good rises? Illustrate your answer on a supply curve.

Accepted Answer

a.
 Producer surplus measures the benefit to sellers of participating in a market.It is measured as the amount a seller is paid minus the cost of production.For an individual sale,producer surplus is measured as the difference between the market price and the cost of production,as shown on the supply curve.For the market,total producer surplus is measured as the area above the supply curve and below the market price,between the origin and the quantity sold.
 b.
 Because the supply curve shows the minimum amount sellers are willing to accept for a given quantity,the supply curve represents the cost of the marginal seller.
 c.
 When the price of a good rises,producer surplus increases for two reasons.First,those sellers who were already selling the good have an increase in producer surplus because the price they receive is higher (area A).Second,new sellers will enter the market because the price of the good is now higher than their willingness to sell (area B); hence,there is additional producer surplus generated from their sales.The graph should show that as price rises from P1 to P2,producer surplus increases from area C to area A+B+C.

Question 4

Total surplus in a market will increase when the government

Accepted Answer

A)  imposes a binding price floor or a binding price ceiling on that market.
B)  imposes a tax on that market.
C)  Both a and b are correct.
D)  Neither a nor b is correct.E) All of the above
F) None of the above

Question 5

Figure 7-6 
-Refer to Figure 7-6.What happens to the consumer surplus if the price rises from 100 to 150?

Accepted Answer

A)  The new consumer surplus is half of the original consumer surplus.
B)  The new consumer surplus is 25 percent of the original consumer surplus.
C)  The new consumer surplus is double the original consumer surplus.
D)  The new consumer surplus is triple the original consumer surplus.E) C) and D)
F) All of the above

Question 6

Economists normally assume people's preferences should be

Accepted Answer

A)  respected.
B)  adjusted.
C)  overruled.
D)  ignored.E) A) and C)
F) C) and D) A

Question 7

A drought destroys many red grapes.As a result of the drought,the consumer surplus in the market for red grapes

Accepted Answer

A)  increases,and the consumer surplus in the market for red wine increases.
B)  increases,and the consumer surplus in the market for red wine decreases.
C)  decreases,and the consumer surplus in the market for red wine increases.
D)  decreases,and the consumer surplus in the market for red wine decreases.E) B) and D)
F) C) and D)

Question 8

Total surplus is represented by the area

Accepted Answer

A)  under the demand curve and above the price.
B)  above the supply curve and up to the price.
C)  under the supply curve and up to the price.
D)  between the demand and supply curves up to the point of equilibrium.E) All of the above
F) C) and D)

Question 9

A seller's opportunity cost measures the

Accepted Answer

A)  value of everything he must give up to produce a good.
B)  amount he is paid for a good minus his cost of providing it.
C)  consumer surplus.
D)  out of pocket expenses to produce a good but not the value of his time.E) None of the above
F) A) and C)

Question 10

Figure 7-14 rd unit is $225.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." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 7-14.Suppose the willingness to pay of the marginal buyer of the 3rd unit is $225.Then total surplus is maximized if

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 11

When a buyer's willingness to pay for a good is equal to the price of the good,the

Accepted Answer

A)  buyer's consumer surplus for that good is maximized.
B)  buyer will buy as much of the good as the buyer's budget allows.
C)  price of the good exceeds the value that the buyer places on the good.
D)  buyer is indifferent between buying the good and not buying it.E) A) and B)
F) All of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

On a graph,consumer surplus is represented by the area

Accepted Answer

A)  between the demand and supply curves.
B)  below the demand curve and above price.
C)  below the price and above the supply curve.
D)  below the demand curve and to the right of equilibrium price.E) A) and B)
F) All of the above

Question 14

Welfare economics is the study of the welfare system.

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is not correct?

Accepted Answer

A)  An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.
B)  Market power can cause markets to be inefficient.
C)  Externalities can cause markets to be inefficient.
D)  The invisible hand can remedy most if not all types of market failures.E) None of the above
F) A) and C)

Question 17

Figure 7-2 
-Refer to Figure 7-2.When the price is P1,consumer surplus is

Accepted Answer

A)  A.
B)  A+B.
C)  A+B+C.
D)  A+B+D.E) A) and C)
F) B) and C)

Question 18

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

Accepted Answer

A)  maximizes both the total revenue for firms and the quantity supplied of the product.
B)  maximizes the combined welfare of buyers and sellers.
C)  minimizes costs and maximizes output.
D)  minimizes the level of welfare payments.E) B) and D)
F) A) and C)

Question 19

In a market,the marginal buyer is the buyer

Accepted Answer

A)  whose willingness to pay is higher than that of all other buyers and potential buyers.
B)  whose willingness to pay is lower than that of all other buyers and potential buyers.
C)  who is willing to buy exactly one unit of the good.
D)  who would be the first to leave the market if the price were any higher.E) B) and D)
F) A) and B)

Question 20

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.

Accepted Answer

A) True 
 B)False  True

Exam 7: Consumers, producers, and the Efficiency of Markets

A demand curve reflects each of the following except the

Correct Answer
verified

Which of the following will cause an increase in consumer surplus?

Correct Answer
verified

Total surplus in a market will increase when the government

Correct Answer
verified

Figure 7-6 -Refer to Figure 7-6.What happens to the consumer surplus if the price rises from 100 to 150?

Correct Answer
verified

Economists normally assume people's preferences should be

Correct Answer
verified
A

A drought destroys many red grapes.As a result of the drought,the consumer surplus in the market for red grapes

Correct Answer
verified

Total surplus is represented by the area

Correct Answer
verified

A seller's opportunity cost measures the

Correct Answer
verified

Figure 7-14 -Refer to Figure 7-14.Suppose the willingness to pay of the marginal buyer of the 3^rd unit is $225.Then total surplus is maximized if

Correct Answer
verified

When a buyer's willingness to pay for a good is equal to the price of the good,the

Correct Answer
verified

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

Correct Answer
verified

On a graph,consumer surplus is represented by the area

Correct Answer
verified

Welfare economics is the study of the welfare system.

Correct Answer
verified

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.

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

Figure 7-2 -Refer to Figure 7-2.When the price is P1,consumer surplus is

Correct Answer
verified

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

Correct Answer
verified

In a market,the marginal buyer is the buyer

Correct Answer
verified

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.

Correct Answer
verified
True

Exam 7: Consumers, producers, and the Efficiency of Markets

A demand curve reflects each of the following except the

Correct AnswerverifiedShow Answer

Which of the following will cause an increase in consumer surplus?

Correct AnswerverifiedShow Answer

Total surplus in a market will increase when the government

Correct AnswerverifiedShow Answer

Figure 7-6 -Refer to Figure 7-6.What happens to the consumer surplus if the price rises from 100 to 150?

Correct AnswerverifiedShow Answer

Economists normally assume people's preferences should be

Correct AnswerverifiedA

A drought destroys many red grapes.As a result of the drought,the consumer surplus in the market for red grapes

Correct AnswerverifiedShow Answer

Total surplus is represented by the area

Correct AnswerverifiedShow Answer

A seller's opportunity cost measures the

Correct AnswerverifiedShow Answer

Figure 7-14 -Refer to Figure 7-14.Suppose the willingness to pay of the marginal buyer of the 3rd unit is $225.Then total surplus is maximized if

Correct AnswerverifiedShow Answer

When a buyer's willingness to pay for a good is equal to the price of the good,the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

On a graph,consumer surplus is represented by the area

Correct AnswerverifiedShow Answer

Welfare economics is the study of the welfare system.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 7-2 -Refer to Figure 7-2.When the price is P1,consumer surplus is

Correct AnswerverifiedShow Answer

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

Correct AnswerverifiedShow Answer

In a market,the marginal buyer is the buyer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedTrue

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Figure 7-14 -Refer to Figure 7-14.Suppose the willingness to pay of the marginal buyer of the 3^rd unit is $225.Then total surplus is maximized if

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