经济学原理 微观 第五版测试题库(07)

Chapter 7

Consumers, Producers, and the Efficiency of Markets

TRUE/FALSE

1. Welfare economics is the study of the welfare system.ANS: F DIF: 1 REF: 7-1 LOC: Supply and demand TOP: Welfare

NAT: Analytic

MSC: Definitional

2.

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.ANS: T DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Willingness to pay MSC: Definitional

3. For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.ANS: T DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Willingness to pay MSC: Interpretive

4.

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.ANS: F DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Willingness to pay MSC: Definitional

5.

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.ANS: F DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Definitional

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.ANS: T DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Definitional

7. Consumer surplus measures the benefit to buyers of participating in a market.ANS: T DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive

8. Consumer surplus can be measured as the area between the demand curve and the equilibrium price.ANS: T DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive

9. Consumer surplus can be measured as the area between the demand curve and the supply curve.ANS: F DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive

10. 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.ANS: F DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive

453

454 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

11. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10.ANS: T DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Applicative

12. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.ANS: F DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Applicative

13. All else equal, an increase in supply will cause an increase in consumer surplus.ANS: T DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Applicative

14. 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.ANS: T DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive

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

increase.ANS: F DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Applicative

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

decrease.ANS: T DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Applicative

17. 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.ANS: T DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Opportunity cost MSC: Interpretive

18. At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.ANS: F DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Opportunity cost MSC: Interpretive

19. In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.ANS: T DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

20. Producer surplus is the amount a seller is paid minus the cost of production.ANS: T DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Definitional

21. Producer surplus is the cost of production minus the amount a seller is paid.ANS: F DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Definitional

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 455

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

ANS: T DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

23. All else equal, a decrease in demand will cause an increase in producer surplus.ANS: F DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

24. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.ANS: F DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

25. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35.ANS: T DIF: 1 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

26. 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.ANS: F DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

27. 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.ANS: T DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

28. The area below the price and above the supply curve measures the producer surplus in a market.ANS: T DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Interpretive

29. The area below the demand curve and above the supply curve measures the producer surplus in a market.ANS: F DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Interpretive

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

increase.ANS: F DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Applicative

31. 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.ANS: T DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus MSC: Interpretive

32. Total surplus in a market is consumer surplus minus producer surplus.ANS: F DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus MSC: Definitional

456 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 33. Total surplus = Value to buyers - Costs to sellers.ANS: T DIF: 2 REF: 7-3 LOC: Supply and demand TOP: Total surplus MSC: Interpretive

NAT: Analytic

34. 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.ANS: F DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus MSC: Interpretive

35. 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.ANS: F DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus MSC: Applicative

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

participating in that market.ANS: T DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

37. 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.ANS: F DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency | Equality MSC: Definitional

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

distributed.ANS: T DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency | Equality MSC: Definitional

39. 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.ANS: T DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

40. Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs

to society of this activity outweigh the benefits.ANS: F DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

41. Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.ANS: T DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

42. 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.ANS: F DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency | Equality MSC: Interpretive

43. Even though participants in the economy are motivated by self-interest, the \

marketplace guides this self-interest into promoting general economic well-being.ANS: T DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Invisible hand MSC: Interpretive

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 457

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

ANS: T DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

45. Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.ANS: T DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive

46. In order to conclude that markets are efficient, we assume that they are perfectly competitive.ANS: T DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Applicative

47. Markets will always allocate resources efficiently.ANS: F DIF: 2 REF: 7-4 LOC: Supply and demand TOP: Efficiency

NAT: Analytic

MSC: Applicative

48. When markets fail, public policy can potentially remedy the problem and increase economic efficiency.ANS: T DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Market failure MSC: Interpretive

49. Market power and externalities are examples of market failures.ANS: T DIF: 2 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Market failure MSC: Interpretive

458 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets SHORT ANSWER1.

Answer each of the following questions about demand and consumer surplus.

a. What is consumer surplus, and how is it measured?

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

c. Other things equal, what happens to consumer surplus if the price of a good falls? Why? Illustrate

using a demand curve.

d. In what way does the demand curve represent the benefit consumers receive from participating in a

market? In addition to the demand curve, what else must be considered to determine consumer surplus?

ANS:

a. Consumer surplus measures the benefit to buyers of participating in a market. It is measured as the

amount a buyer is willing to pay for a good minus the amount a buyer actually pays for it. For an individual purchase, consumer surplus is the difference between the willingness to pay, as shown on the demand curve, and the market price. For the market, total consumer surplus is the area under the demand curve and above the price, from the origin to the quantity purchased.

b. Because the demand curve shows the maximum amount buyers are willing to pay for a given

market quantity, the price given by the demand curve represents the willingness to pay of the marginal buyer.

c. When the price of a good falls, consumer surplus increases for two reasons. First, those buyers

who were already buying the good receive an increase in consumer surplus because they are paying less (area B). Second, some new buyers enter the market because the price of the good is now lower than their willingness to pay (area C); hence, there is additional consumer surplus generated from their purchases. The graph should show that as price falls from P2 to P1, consumer surplus increases from area A to area A+B+C.

d. Since the demand curve represents the maximum price the marginal buyer is willing to pay for a

good, it must also represent the maximum benefit the buyer expects to receive from consuming the good. Consumer surplus must take into account the amount the buyer actually pays for the good, with consumer surplus measured as the difference between what the buyer is willing to pay and what he/she actually paid. Consumer surplus, then, measures the benefit the buyer didn't have to \

PriceAP2BP1CDFDemandQ2Q1QuantityDIF: 2 REF: 7-1 TOP: Consumer surplus NAT: Analytic

MSC: Interpretive

LOC: Supply and demand

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 459

2.

Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats:

$0.60 $0.50 $0.40 $0.30 $0.20 $0.10 Value of first donut Value of second donut Value of third donut Value of fourth donut Value of fifth donut Value of sixth donut a. Use this information to construct Tammy's demand curve for donuts. b. If the price of donuts is $0.20, how many donuts will Tammy buy?

c. Show Tammy's consumer surplus on your graph. How much consumer surplus would she have

at a price of $0.20?

d. If the price of donuts rose to $0.40, how many donuts would she purchase now? What would

happen to Tammy's consumer surplus? Show this change on your graph.

10.90.80.70.60.50.40.30.20.1123456PriceANS:

a.

Demand78Quantityb. At a price of $0.20, Tammy would buy 5 donuts.

c. The figure below shows Tammy's consumer surplus. At a price of $0.20, Tammy's consumer surplus

would be $1.00.

10.90.80.70.60.50.40.30.20.11234560.10.10.10.10.10.10.10.10.10.1Price

Demand78Quantity

d. If the price of donuts rose to $0.40, Tammy's consumer surplus would fall to $0.30 and she would

purchase only 3 donuts.

460 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

10.90.80.70.60.50.40.30.20.11234560.10.10.1PriceDemand78QuantityDIF: 2 REF: 7-1 TOP: Consumer surplus 3.

NAT: Analytic

MSC: Applicative

LOC: Supply and demand

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.

ANS:

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.

PriceSupplyP2AP1CGBDQ1Q2QuantityDIF: 2 REF: 7-2 TOP: Producer surplus NAT: Analytic

MSC: Interpretive

LOC: Supply and demand

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 461

4. Given the following equations two equations:

1) Total Surplus = Consumer Surplus + Producer Surplus 2) Total Surplus = Value to Buyers - Cost to Sellers

Show how equation (1) can be used to derive equation (2).ANS:

Start with the equation: Total Surplus = Consumer Surplus + Producer Surplus. Then, since Consumer Surplus = Value to buyers - Amount paid by buyers, and since Producer Surplus = Amount received by sellers - Costs of

sellers, then Total Surplus can be written as: Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers. Since the Amount paid by buyers equals the Amount received by sellers, the middle two terms cancel out and the result is:

Total Surplus = Value to buyers - Costs of sellers.

DIF: 2

TOP: Total surplus REF: 7-3 NAT: Analytic

MSC: Analytical

LOC: Supply and demand

462 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 5.

Answer the following questions based on the graph that represents J.R.'s demand for ribs per week of ribs at

Judy's rib shack. a. b. c. d. e. f. g. h. i.

At the equilibrium price, how many ribs would J.R. be willing to purchase? How much is J.R. willing to pay for 20 ribs?

What is the magnitude of J.R.'s consumer surplus at the equilibrium price? At the equilibrium price, how many ribs would Judy be willing to sell? How high must the price of ribs be for Judy to supply 20 ribs to the market? At the equilibrium price, what is the magnitude of total surplus in the market? If the price of ribs rose to $10, what would happen to J.R.'s consumer surplus? If the price of ribs fell to $5, what would happen to Judy's producer surplus?

Explain why the graph that is shown verifies the fact that the market equilibrium (quantity) maximizes the sum of producer and consumer surplus.

201816141210865421020304050607080QuantityPriceSupplyDemandANS:

a. b. c. d. e. f. g. h. i.

40 $10.00 $80.00. 40 $5 $200

It would fall from $80 to only $20. It would fall from $120 to only $30.

At quantities less than the equilibrium quantity, the marginal value to buyers exceeds the marginal cost to sellers. Increasing the quantity in this region raises total surplus until equilibrium quantity is reached. At quantities greater than the equilibrium quantity, the marginal cost to sellers exceeds the marginal value to buyers and total surplus falls.

LOC: Supply and demand MSC: Analytical

DIF: 3 REF: 7-3 NAT: Analytic TOP: Consumer surplus | Producer surplus | Total surplus

Sec00 - Consumers, Producers, and the Efficiency of Markets

MULTIPLE CHOICE1.

Welfare economics is the study of how

a. the allocation of resources affects economic well-being. b. a price ceiling compares to a price floor. c. the government helps poor people.

d. a consumer’s optimal choice affects her demand curve.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional

TOP: Welfare

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 463

2.

Welfare economics is the study of

a. taxes and subsidies.

b. how technology is best put to use in the production of goods and services. c. government welfare programs for needy people.

d. how the allocation of resources affects economic well-being.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Definitional3.

TOP: Welfare

Welfare economics is the study of

a. the well-being of less fortunate people. b. welfare programs in the United States.

c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Definitional4.

TOP: Welfare

The study of how the allocation of resources affects economic well-being is called a. consumer economics. b. macroeconomics.

c. willingness-to-pay economics. d. welfare economics.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Definitional5.

TOP: Welfare

An example of positive analysis is studying a. how market forces produce equilibrium. b. whether equilibrium outcomes are fair.

c. whether equilibrium outcomes are socially desirable. d. if income distributions are fair.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional6.

TOP: Positive statements

An example of normative analysis is studying a. how market forces produce equilibrium. b. surpluses and shortages.

c. whether equilibrium outcomes are socially desirable. d. income distributions.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Definitional7.

TOP: Normative statements

Which of the Ten Principles of Economics does welfare economics explain more fully? a. The cost of something is what you give up to get it.

b. Markets are usually a good way to organize economic activity. c. Trade can make everyone better off.

d. A country’s standard of living depends on its ability to produce goods and services.

DIF: 2 REF: 7-0 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Interpretive

TOP: Welfare

464 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 8.

Which of the Ten Principles of Economics does welfare economics explain more fully?

a. The cost of something is what you give up to get it. b. Rational people think at the margin.

c. Markets are usually a good way to organize economic activity. d. People respond to incentives.

DIF: 2 REF: 7-0 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Interpretive9.

TOP: Welfare

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of a. factor markets. b. energy markets. c. welfare economics. d. labor economics.

DIF: 1 REF: 7-0 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Interpretive

TOP: Welfare

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

because it

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.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-0 LOC: Supply and demand

TOP: Welfare

11. The particular price that results in quantity supplied being equal to quantity demanded is the best price because

it

a. maximizes costs of the seller.

b. maximizes tax revenue for the government.

c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-0 LOC: Supply and demand

TOP: Welfare

12. Welfare economics explains which of the following in the market for DVDs?

a. The government sets the price of DVDs; firms respond to the price by producing a specific level of

output.

b. The government sets the quantity of DVDs; firms respond to the quantity by charging a specific

price.

c. The market equilibrium price for DVDs maximizes the total welfare to DVD buyers and sellers. d. The market equilibrium price for DVDs maximizes consumer welfare but minimizes producer

welfare.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-0 LOC: Supply and demand

TOP: Welfare

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 465

Sec01 - Consumers, Producers, and the Efficiency of Markets - Consumer Surplus

MULTIPLE CHOICE1.

The maximum price that a buyer will pay for a good is called the

a. cost.

b. willingness to pay. c. equity. d. efficiency.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional2.

TOP: Willingness to pay

Suppose Larry, Moe and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional3.

TOP: Willingness to pay

Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a

maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. deadweight loss. b. willingness to pay. c. consumer surplus. d. producer surplus.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional4.

TOP: Willingness to pay

Willingness to pay

a. measures the value that a buyer places on a good.

b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing

to accept.

c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to

accept.

d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional5.

TOP: Willingness to pay

A consumer's willingness to pay directly measures

a. the extent to which advertising and other external forces have influenced the consumer’s

preferences.

b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

DIF: 2 REF: 7-1 TOP: Willingness to pay

MSC: Interpretive

ANS: C

NAT: Analytic

466 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 6.

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

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.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive7.

TOP: Willingness to pay

In which of the following circumstances would a buyer be indifferent about buying a good?

a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer’s willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive8.

TOP: Willingness to pay

A demand curve reflects each of the following except the 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.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive9.

TOP: Willingness to pay

Consumer surplus is

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good.

c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional

TOP: Consumer surplus

10. Consumer surplus

a. is the amount of a good that a consumer can buy at a price below equilibrium price.

b. is the amount a consumer is willing to pay minus the amount the consumer actually pays. c. is the number of consumers who are excluded from a market because of scarcity. d. measures how much a seller values a good.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

11. Consumer surplus is the

a. amount of a good consumers get without paying anything.

b. amount a consumer pays minus the amount the consumer is willing to pay.

c. amount a consumer is willing to pay minus the amount the consumer actually pays. d. value of a good to a consumer.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 467

12. Consumer surplus is equal to the

a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers.

d. Value to buyers - Willingness to pay of buyers.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

13. On a graph, the area below a demand curve and above the price measures

a. producer surplus. b. consumer surplus. c. deadweight loss. d. willingness to pay.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

14. On a graph, consumer surplus is represented by the area

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.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

15. Consumer surplus in a market can be represented by the

a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. distance from the demand curve to the vertical axis.

d. area below the demand curve and above the horizontal axis.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

16. Consumer surplus is

a. a concept that helps us make normative statements about the desirability of market outcomes. b. represented on a graph by the area below the demand curve and above the price. c. a good measure of economic welfare if buyers' preferences are the primary concern. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

17. In a market, the marginal buyer is the buyer

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.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Marginal buyer

468 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Table 7-1 Buyer Mike Sandy Jonathan Haley Willingness To Pay $50.00 $30.00 $20.00 $10.00 18. Refer to Table 7-1. If the price of the product is $15, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan

d. Mike, Sandy, Jonathan, and Haley

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

19. Refer to Table 7-1. If the price of the product is $22, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan

d. Mike, Sandy, Jonathan, and Haley

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

20. Refer to Table 7-1. If the price of the product is $51, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan d. no one

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

21. Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is

a. $38. b. $42. c. $46. d. $72.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

22. Refer to Table 7-1. If price of the product is $30, then the total consumer surplus is

a. $-10. b. $-6. c. $20. d. $30.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 469

Table 7-2

This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Buyer Willingness To Pay David $8.50 Laura $7.00 Megan $5.50 Mallory $4.00 Audrey $3.50 23. Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good?

a. all five individuals

b. Megan, Mallory and Audrey c. David, Laura and Megan d. David and Laura

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

24. Refer to Table 7-2. Which of the following is not true?

a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke.

b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not buying

one.

c. At a price of $4.00, total consumer surplus in the market will be $9.00. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

25. Refer to Table 7-2. 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.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

26. Refer to Table 7-2. If the market price is $3.80,

a. David’s consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50. b. Megan’s consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80. c. David, Laura, and Megan will be the only buyers of Vanilla Coke.

d. the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

470 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

Table 7-3

The only four consumers in a market have the following willingness to pay for a good:

Buyer Carlos Quilana Wilbur Ming-la Willingness to Pay $15 $25 $35 $45 27. Refer to Table 7-3. If the market price for the good is $30, who will purchase the good?

a. Carlos only

b. Carlos and Quilana only

c. Carlos, Quilana, and Wilbur only d. Wilbur and Ming-la only

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

28. Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each other for the right

to purchase it, then the good will sell for a. $15 or slightly less. b. $25 or slightly more. c. $35 or slightly more. d. $45 or slightly less.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

29. Refer to Table 7-3. If there is only one unit of the good and if the buyers bid against each other for the right

to purchase it, then the consumer surplus will be a. $0 or slightly more. b. $10 or slightly less. c. $30 or slightly more. d. $45 or slightly less.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

30. Refer to Table 7-3. If the price is $30, then consumer surplus in the market is

a. $20, and Wilbur and Ming-la purchase the good. b. $20, and Carlos and Quilana purchase the good. c. $30, and Wilbur and Ming-la purchase the good. d. $30, and Carlos and Quilana purchase the good.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

31. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good

increases from $20 to $22? a. Quilana b. Wilbur c. Ming-la

d. All three buyers experience the same loss of consumer surplus.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 471

Table 7-4

The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis Cardinal’s baseball game at Wrigley Field.

Buyer Jennifer Bryce Dan David Ken Lisa Willingness to Pay $10 $15 $20 $25 $50 $60 32. Refer to Table 7-4. If you have a ticket that you sell to the group in an auction, what will be the selling

price? a. $21 b. $26 c. $51 d. $61

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

33. Refer to Table 7-4. If you have a ticket that you sell to the group in an auction, who will buy the ticket?

a. Dan b. David c. Ken d. Lisa

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

34. Refer to Table 7-4. If tickets sell for $20 each, then what is the total consumer surplus in the market?

a. $5 b. $30 c. $40 d. $75

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

35. Refer to Table 7-4. If tickets sell for $25 each, then what is the total consumer surplus in the market?

a. $25 b. $35 c. $60 d. $110

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

36. Refer to Table 7-4. If you have two (essentially) identical tickets that you sell to the group in an auction,

what will be the selling price for each ticket? a. $21 b. $26 c. $51 d. $61

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

472 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

Table 7-5

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Alex Barb Carlos First Orange $2.00 $1.50 $0.75 Second Orange $1.50 $1.00 $0.25 Third Orange $0.75 $0.80 $0 37. Refer to Table 7-5. If the market price of an orange is $1.20, the market quantity of oranges demanded per

day is a. 1. b. 2. c. 3. d. 4.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Market demand

38. Refer to Table 7-5. If the market price of an orange is $0.70, the market quantity of oranges demanded per

day is a. 5. b. 6. c. 7. d. 9.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Market demand

39. Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 5 if the price of an orange, P,

satisfies

a. $1.00 < P < $1.50. b. $0.80 < P < $1.50. c. $0.80 < P < $1.00. d. $0.75 < P < $0.80.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Market demand

40. Refer to Table 7-5. If the market price of an orange is $1.20, consumer surplus amounts to

a. $0.70. b. $1.10. c. $1.40. d. $5.00.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

41. Refer to Table 7-5. If the market price of an orange is $0.40,

a. 6 oranges are demanded per day, and total consumer surplus amounts to $4.45. b. 6 oranges are demanded per day, and total consumer surplus amounts to $5.10. c. 7 oranges are demanded per day, and total consumer surplus amounts to $5.35. d. 7 oranges are demanded per day, and total consumer surplus amounts to $5.50.

ANS: D DIF: 3 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Market demand | Consumer surplus

MSC: Analytical

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 473

42. Refer to Table 7-5. If the market price of an orange increases from $0.60 to $1.05, total consumer surplus

a. increases by $2.90. b. decreases by $2.25. c. decreases by $2.70. d. decreases by $3.85.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

43. Refer to Table 7-5. If the market price of an orange increases from $0.70 to $1.40, total consumer surplus

a. increases by $2.50. b. decreases by $0.80. c. decreases by $2.50. d. decreases by $3.40.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

44. Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of an orange

increases from $0.70 to $1.40? a. Alex b. Barb c. Carlos

d. All three individuals experience the same loss of consumer surplus.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

45. Refer to Table 7-5. Who experiences the largest gain in consumer surplus when the price of an orange

decreases from $1.05 to $0.75? a. Alex b. Barb c. Carlos

d. Alex and Barb experience the same gain in consumer surplus, and Carlos’s gain is zero.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

46. Refer to Table 7-5. Which of the following statements is correct?

a. Neither Barb’s consumer surplus nor Carlos’s consumer surplus can exceed Alex’s consumer

surplus, for any price of an orange.

b. All three individuals will buy at least one orange only if the price of an orange is less than $0.25. c. If the price of an orange is $0.60, total consumer surplus is $4.90. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

474 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

47. You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume

the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

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

market for red grapes

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.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

49. Olaf would be willing to pay $35 to attend a dog show, but he buys a ticket for $20. Olaf values the dog

show at a. $15. b. $20. c. $35. d. $50.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

50. If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

a. consumer has consumer surplus of $2 if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market.

d. price of the good will fall due to market forces.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

51. If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the

a. consumer has consumer surplus of $5 if he buys the good. b. consumer does not purchase the good.

c. price of the good will rise due to market forces. d. market is out of equilibrium.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 475

52. If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that

consumer, consumer surplus amounts to a. $4. b. $16. c. $20. d. $36.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

53. Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite outlet shoe store

for $48. Kelly's consumer surplus is a. $10. b. $20. c. $48. d. $68.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

54. Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is

a. $50. b. $150. c. $350. d. $400.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

55. Josh is willing to pay $40 for a haircut, but he is able to pay $25 at the local salon. His consumer surplus is

a. $0 because the cost exceeds his maximum willingness to pay. b. $15. c. $25. d. $65.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

56. Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's

willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be a. $15. b. $30. c. $45. d. $90.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

476 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

57. Suppose Bart, Benjamin, and Brent each purchase a particular type of electric pencil sharpener at a price of

$20. Bart’s willingness to pay was $22, Benjamin's willingness to pay was $25, and Brent's willingness to pay was $30. Which of the following statements is correct?

a. Had the price of the pencil sharpener been $26 rather than $20, only Brent would have been a

buyer.

b. Brent’s consumer surplus is the smallest of the three individual consumer surpluses. c. For the three individuals together, consumer surplus amounts to $60.

d. The fact that all three individuals paid $20 for the same type of pencil sharpener indicates that each

one placed the same value on that pencil sharpener.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

58. Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie’s

willingness to pay was $100, Kendra’s willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct?

a. For the three individuals together, consumer surplus amounts to $35.

b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have

been buyers and Kristen definitely would not have been a buyer.

d. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one

placed the same value on that cell phone.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

59. Sarah buys a new MP3 player for $135. She receives consumer surplus of $25 on her purchase if her

willingness to pay is a. $25. b. $110. c. $135. d. $160.

ANS: D

NAT: Analytic DIF: 2 REF: 7-1 TOP: Consumer surplus

MSC: Applicative

60. Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a

particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Noah is rational in deciding how many cans to buy. His consumer surplus is a. $0.50. b. $0.85. c. $1.05. d. $1.20.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

61. Janine would be willing to pay $50 to see Les Misérables, but she buys a ticket for only $30. Janine values the

performance at a. $20. b. $30. c. $50. d. $80.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 477

62. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for

$3.75 per cup. Chad's consumer surplus is a. $8.75. b. $5.00. c. $3.75. d. $1.25.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

63. Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup.

He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?

a. Chad’s willingness to pay for his second cup of latté was smaller than his willingness to pay for his

first cup of latté.

b. Chad’s consumer surplus on his second cup of latté was larger than his consumer surplus on his

first cup of latté.

c. Chad is irrational in that he is willing to pay a different price for his second cup of latté than what

he is willing to pay for his first cup of latté.

d. Chad places a higher value on his second cup of latté than on his first cup of latté.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

64. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350.

Denise's willingness to pay is a. $150. b. $350. c. $500. d. $850.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

65. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350.

Denise's consumer surplus is a. $150. b. $350. c. $500. d. $850.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

66. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for

$3,000. Michael's willingness to pay is a. $500. b. $3,000. c. $3,500. d. $6,500.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

478 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

67. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for

$3,000. Michael's consumer surplus is a. $500. b. $3,000. c. $3,500. d. $6,500.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

68. Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is

$650. Denise

a. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150. b. buys the dishwasher, and on her purchase she experiences a consumer surplus of $-150.

c. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $150. d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

69. Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's

willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

70. Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and

realizes consumer surplus of $700. How much did Jeff pay for his computer? a. $700 b. $2,300 c. $3,000 d. $3,700

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

71. 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 $575. Cameron's consumer surplus from the purchase is a. $175. b. $575. c. $750. d. $1,325.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

72. If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer

surplus relevant to that purchase is a. zero.

b. negative, and the consumer would not purchase the product. c. positive, and the consumer would purchase the product.

d. There is not enough information given to answer this question.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 479

73. Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to

consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases.

c. Consumer surplus is not affected by this change in market forces.

d. We would have to know whether the demand for lemons is elastic or inelastic to make this

determination.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

74. Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you

bought this week, you paid a price exactly equal to your willingness to pay. Then a. you should buy more tomatoes before the end of the week. b. you already have bought too many tomatoes this week.

c. your consumer surplus on the last tomato you bought is zero.

d. your consumer surplus on all of the tomatoes you have bought this week is zero.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

75. Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25).

If there are five buyers in the market, then

a. the marginal buyer's willingness to pay for the 100th unit of the good is $25.

b. the sum of the five buyers' willingness to pay for the 100th unit of the good is $25. c. the average of the five buyers' willingness to pay for the 100th unit of the good is $25. d. all of the five buyers are willing to pay at least $25 for the 100th unit of the good.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Marginal buyer

76. If the cost of producing sofas decreases, then consumer surplus in the sofa market will

a. increase. b. decrease.

c. remain constant.

d. increase for some buyers and decrease for other buyers.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

77. All else equal, what happens to consumer surplus if the price of a good increases?

a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.

d. Consumer surplus may increase, decrease, or remain unchanged.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

78. All else equal, what happens to consumer surplus if the price of a good decreases?

a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.

d. Consumer surplus may increase, decrease, or remain unchanged.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

480 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 79. Which of the following will cause an increase in consumer surplus?

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 market

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

80. Which of the following will cause a decrease in consumer surplus?

a. an increase in the number of sellers of the good b. a decrease in the production cost of the good

c. sellers expect the price of the good to be lower next month d. the imposition of a binding price floor in the market

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

81. When there is a technological advance in the ice cream industry, consumer surplus in that market will

a. increase. b. decrease.

c. not change, since technology affects producers and not consumers.

d. not change, since consumers’ willingness to pay is unaffected by the technological advance.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

82. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

a. Consumer surplus increases. b. Consumer surplus decreases.

c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

83. Which of the following is not true when the price of a good or service falls?

a. Buyers who were already buying the good or service are better off. b. Some new buyers, who are now willing to buy, enter the market. c. The total consumer surplus in the market increases.

d. The total value of purchases before and after the price change is the same.

ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Willingness to pay MSC:

Interpretive

84. When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

a. decreases. b. is unchanged. c. increases.

d. may increase, decrease, or remain unchanged.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 481

85. Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result,

consumer surplus in the television market a. decreases. b. is unchanged. c. increases.

d. may increase, decrease, or remain unchanged.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

86. Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline

market

a. decreases. b. is unchanged. c. increases.

d. may increase, decrease, or remain unchanged.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

87. Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a

change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

a. Dallas's consumer surplus would be unaffected. b. Dallas's consumer surplus would increase. c. Dallas's consumer surplus would decrease.

d. Dallas would be wise to buy fewer strawberries than before.

ANS: B

NAT: Analytic MSC: InterpretiveFigure 7-1

PriceDIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

AP2BP1CDFDemandQ2Q1Quantity88. Refer to Figure 7-1. When the price is P1, consumer surplus is

a. A. b. A+B. c. A+B+C. d. A+B+D.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

482 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 89. Refer to Figure 7-1. When the price is P2, consumer surplus is

a. A. b. B. c. A+B. d. A+B+C.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

90. Refer to Figure 7-1. 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.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

91. Refer to Figure 7-1. Area C represents the

a. 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. increase in producer surplus when quantity sold increases from Q2 to Q1.

d. decrease in consumer surplus to each consumer in the market when the price increases from P1 to

P2.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

92. Refer to Figure 7-1. When the price rises from P1 to P2, which of the following statements 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. Buyers place a higher value on the good after the price increase. d. Consumer surplus in the market falls.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 483

Figure 7-2

PriceABP1DFGCP2DemandQ1Q2Quantity93. Refer to Figure 7-2. Which area represents consumer surplus at a price of P1?

a. ABD b. ACG c. BCDF d. DFG

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

94. Refer to Figure 7-2. Which area represents consumer surplus at a price of P2?

a. ABD b. ACG c. BCDF d. DFG

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

95. Refer to Figure 7-2. Which area represents the increase in consumer surplus when the price falls from P1 to

P2?

a. ABD b. ACG c. DFG d. BCGD

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

96. Refer to Figure 7-2. When the price falls from P1 to P2, which area represents the increase in consumer

surplus to existing buyers? a. ABD b. ACG c. BCFD d. DFG

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

484 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

97. Refer to Figure 7-2. When the price falls from P1 to P2, which area represents the increase in consumer

surplus to new buyers entering the market? a. ABD b. ACG c. BCDF d. DFG

ANS: D

NAT: Analytic MSC: ApplicativeFigure 7-3

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

98. Refer to Figure 7-3. If the price of the good is $6, then consumer surplus is

a. $4. b. $6. c. $8. d. $10.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

99. Refer to Figure 7-3. If the price of the good is $5, then consumer surplus is

a. $9. b. $11. c. $13. d. $16.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 485

Figure 7-4

Price1701601501401301201101009080706050403020102456810121416182022SupplyDemand25242628Quantity100. Refer to Figure 7-4. At the equilibrium price, consumer surplus is

a. $200. b. $300. c. $500. d. $600.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

101. Refer to Figure 7-4. If the government imposes a price floor of $120 in this market, then consumer surplus

will decrease by a. $75. b. $125. c. $225. d. $300.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

486 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Figure 7-5

Price2502252001751501251007550252550Demand75100125150Quantity102. Refer to Figure 7-5. What is the consumer surplus if the price is $100?

a. $2,500 b. $5,000 c. $10,000 d. $20,000

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

103. Refer to Figure 7-5. What happens to the consumer surplus if the price rises from $100 to $150?

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.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

104. Consumer surplus is a good measure of economic welfare if policymakers want to

a. maximize total benefit. b. minimize deadweight loss.

c. respect the preferences of sellers. d. respect the preferences of buyers.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Sec02 - Consumers, Producers, and the Efficiency of Markets - Producer Surplus

MULTIPLE CHOICE

1.

A seller’s opportunity cost measures the

a. value of everything she must give up to produce a good. b. amount she is paid for a good minus her cost of providing it. c. consumer surplus.

d. out of pocket expenses to produce a good but not the value of her time.

DIF: 1 REF: 7-2 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional

TOP: Cost

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 487

2.

Cost is a measure of the

a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage.

d. seller's willingness to buy.

DIF: 1 REF: 7-2 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Interpretive3.

TOP: Cost

Ally mows lawns for a living. Ally’s out-of-pocket expenses (for equipment, gasoline, and so on) plus the value that she places on her own time amount to her a. producer surplus. b. producer deficit.

c. cost of mowing lawns. d. profit.

DIF: 1 REF: 7-2 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Definitional4.

TOP: Cost

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs.

d. the amount that will be purchased by consumers in the market.

ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus | Supply curve MSC: Interpretive5.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

a. seller’s producer surplus. b. sellers’s cost of production. c. seller’s profit.

d. average willingness to pay of buyers of the product.

DIF: 2 REF: 7-2 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Interpretive6.

TOP: Cost

Producer surplus is

a. measured using the demand curve for a good.

b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production.

d. the opportunity cost of production minus the cost of producing goods that go unsold.

DIF: 2 REF: 7-2 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Definitional7.

TOP: Producer surplus

Producer surplus measures the

a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market.

c. price that buyers are willing to pay for sellers’ output of a good or service.

d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

DIF: 2 REF: 7-2 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Interpretive

TOP: Producer surplus

488 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 8.

A seller’s willingness to sell is

a. measured by the seller’s cost of production.

b. related to her supply curve, just as a buyer’s willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct.

DIF: 2 REF: 7-2 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive9.

TOP: Producer surplus

Karen sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Karen is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.

DIF: 2 REF: 7-2 LOC: Supply and demand

ANS: C

NAT: Analytic MSC: Analytical

TOP: Producer surplus

10. Anita sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $3.50 per

knife for as many knives as Anita is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.50, the third knife for $3.00, and the fourth knife for $3.50. Assume Anita is rational in deciding how many knives to sharpen. Her producer surplus is a. $3.50. b. $3.00. c. $2.00. d. $0.50.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

11. David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $150 per tuning.

One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $25. b. $35. c. $70. d. $95.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

12. David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $135 per tuning.

One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $-15. b. $20. c. $30. d. $75.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 489

13. Ivana produces cookies. Her production cost is $6 per dozen. She sells the cookies for $8 per dozen. Her

producer surplus per dozen cookies is a. $2. b. $6. c. $8. d. $14.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

14. Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per

ton is a. $150. b. $200. c. $350. d. $550.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 1 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

15. If Roberta sells a shirt for $30, and her producer surplus from the sale is $23, her cost must have been

a. $53. b. $30. c. $7.

d. We would have to know the consumer surplus in order to make this determination.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

16. Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10, the cost of

mowing the second lawn is $12, and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is a. $25. b. $30. c. $36. d. $45.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

17. At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes,

Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for a. $6.50 each. b. $7.50 each. c. $9.50 each. d. $10.50 each.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

18. Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they

sell 40 cups, and their producer surplus for that day amounts to $15.20. Kristi and Rebecca sold each cup for a. 31 cents. b. 38 cents. c. 45 cents. d. 55 cents.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

490 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Table 7-6

The following table represents the costs of five possible sellers.

Seller Abby Bobby Carlos Dianne Evalina Cost $1,500 $1,200 $1,000 $750 $500 19. Refer to Table 7-6. If the market price is $1,000, the producer surplus in the market is

a. $700. b. $750. c. $2,250. d. $3,700.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

20. Refer to Table 7-6. If the market price is $900, the producer surplus in the market is

a. $350. b. $550. c. $750. d. $1,000.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

21. Refer to Table 7-6. If the market price is $1,100, the combined total cost of all participating sellers is

a. $3,700. b. $2,700. c. $2,250. d. $1,250.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Opportunity cost

22. Refer to Table 7-6. If the market price is $900, the combined total cost of all participating sellers is

a. $3,700. b. $2,700. c. $2,250. d. $1,250.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Opportunity cost

23. Refer to Table 7-6. If the price is $1,000,

a. Bobby is an eager supplier. b. Dianne is an eager supplier. c. Abby’s producer surplus is $500. d. All of the above are correct.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus | Supply

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 491

24. Refer to Table 7-6. If the price is $775, who would be willing to supply the product?

a. Abby and Bobby

b. Abby, Bobby, and Carlos c. Carlos, Dianne, and Evalina d. Dianne and Evalina

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus | Supply

25. Refer to Table 7-6. Suppose each of the five sellers can supply at most one unit of the good. The market

quantity supplied is exactly 3 if the price is a. $670. b. $770. c. $970. d. $1,170.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus | Supply

26. Refer to Table 7-6. Suppose each of the five sellers can supply at most one unit of the good. The market

quantity supplied is exactly 4 if the price is a. $770. b. $970. c. $1,170. d. $1,370.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus | Supply

27. Refer to Table 7-6. Who is a marginal seller when the price is $1,200?

a. Bobby

b. Bobby and Abby

c. Carlos, Dianne, and Evalina

d. Carlos, Dianne, Evalina, and Bobby

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Marginal seller

Table 7-7

The only four producers in a market have the following cost:

Seller Charlie Quinn Wrex Maxine Cost $50 $100 $150 $200 28. Refer to Table 7-7. If the sellers bid against each other for the right to sell the good to a consumer, then the

good will sell for

a. $50 or slightly more. b. $100 or slightly less. c. $150 or slightly less. d. $200 or slightly more.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Price | Cost

492 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

29. Refer to Table 7-7. If the sellers bid against each other for the right to sell the good to a consumer, then the

producer surplus will be a. $0 or slightly more. b. $50 or slightly less. c. $150 or slightly less. d. $200 or slightly more.

ANS: B DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Price | Cost | Producer surplus MSC: Analytical

30. Refer to Table 7-7. If Charlie, Quinn, and Wrex sell the good, and the resulting producer surplus is $300,

then the price must have been a. $200. b. $300. c. $450. d. $600.

ANS: A DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Price | Cost | Producer surplus MSC: Analytical

31. Refer to Table 7-7. If Charlie, Quinn, Wrex, and Maxine sell the good, and the resulting producer surplus is

$700, then the price must have been a. $200. b. $300. c. $500. d. $700.

ANS: B DIF: 3 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Price | Cost | Producer surplus MSC: Analytical

Table 7-8

The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality.

Seller Marcia Jan Cindy Greg Peter Bobby Cost $200 $250 $350 $400 $700 $800 32. Refer to Table 7-8. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. You

will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept? a. $351 b. $251 c. $249 d. $199

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 493

33. Refer to Table 7-8. You wish to purchase 10 piano lessons for yourself and for your brother, so you take

bids from each of the sellers. You will take lessons at the same time, so one teacher cannot provide lessons to both of you. You must pay the same price for both sets of lessons, and you will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. What bid will you accept? a. $351 b. $349 c. $201 d. $199

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

34. Refer to Table 7-8. The equilibrium market price for 10 piano lessons is $400. What is the total producer

surplus in the market? a. $0 b. $300 c. $400 d. $700

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

35. Refer to Table 7-8. The equilibrium market price for 10 piano lessons is $300. What is the total producer

surplus in the market? a. $50 b. $150 c. $1,050 d. $1,500

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

36. Refer to Table 7-8. You wish to purchase 10 piano lessons, so you take bids from each of the sellers. The

bids are required to be rounded to the nearest dollar. You will not accept a bid below a seller’s cost because you are concerned that the seller will not provide all 10 lessons. Your parents have given you $450 to spend on piano lessons. You believe that the sellers with higher opportunity costs offer higher quality lessons. You want the highest quality lessons that you can afford, but you can spend any remaining money on dinner with friends. From whom will you take lessons, and how much money will you spend? a. Peter; $450 b. Cindy; $450 c. Greg; $401 d. Cindy; $401

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

494 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Figure 7-6

37. Refer to Figure 7-6. If the price of the good is $8.50, then producer surplus is

a. $2.50. b. $6.50. c. $8.00. d. $11.00.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

38. Refer to Figure 7-6. If the price of the good is $14, then producer surplus is

a. $17. b. $22. c. $25. d. $28.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 495

Figure 7-7

PriceSupplyADHP2P1BGCQ1Q2Quantity39. Refer to Figure 7-7. Which area represents producer surplus when the price is P1?

a. BCG b. ACH c. ABGD d. DGH

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

40. Refer to Figure 7-7. Which area represents producer surplus when the price is P2?

a. BCG b. ACH c. ABGD d. AHGB

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

41. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price rises from P1 to

P2?

a. BCG b. ACH c. ABGD d. AHGB

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

42. Refer to Figure 7-7. When the price rises from P1 to P2, which area represents the increase in producer

surplus to existing producers? a. BCG b. ACH c. DGH d. ABGD

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

496 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

43. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price rises from P1 to

P2 due to new producers entering the market? a. BCG b. ACH c. DGH d. AHGB

ANS: C

NAT: Analytic MSC: ApplicativeFigure 7-8

300275250225200175150125100755025PriceDIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

S'SD2550D'Quantity7510012515017520044. Refer to Figure 7-8. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what

is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

45. Refer to Figure 7-8. If the supply curve is S’, the demand curve is D, and the equilibrium price is $150,

what is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

46. Refer to Figure 7-8. If the demand curve is D and the supply curve shifts from S’ to S, what is the change

in producer surplus?

a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 497

47. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’, what is the change

in producer surplus?

a. Producer surplus increases by $3,125. b. Producer surplus increases by $5,625. c. Producer surplus decreases by $3,125. d. Producer surplus decreases by $5,625.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

48. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’, what is the increase

in producer surplus to existing producers? a. $625 b. $2,500 c. $3,125 d. $5,625

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

49. Refer to Figure 7-8. If the supply curve is S and the demand curve shifts from D to D’, what is the increase

in producer surplus due to new producers entering the market? a. $625 b. $2,500 c. $3,125 d. $5,625

ANS: A

NAT: Analytic MSC: AnalyticalFigure 7-9

2502252001751501251007550252550PriceDIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

S75100125150Quantity50. Refer to Figure 7-9. If the equilibrium price is $50, what is the producer surplus?

a. $625 b. $3,750 c. $5,625 d. $10,000

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

498 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

51. Refer to Figure 7-9. If the equilibrium price is $200, what is the producer surplus?

a. $625 b. $3,750 c. $10,000 d. $20,000

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

52. Refer to Figure 7-9. If the equilibrium price rises from $50 to $200, what is the additional producer surplus

to initial producers? a. $625 b. $3,750 c. $5,625 d. $10,000

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

53. Refer to Figure 7-9. If the equilibrium price rises from $50 to $200, what is the producer surplus to new

producers? a. $625 b. $3,750 c. $5,625 d. $10,000

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 499

Figure 7-10

Price170160150140130120110100908070605040302010123456789101112131415161718192021222324SD25Quantity54. Refer to Figure 7-10. At the equilibrium price, producer surplus is

a. $200. b. $400. c. $450. d. $900.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

55. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then the new

producer surplus will be a. $50. b. $100. c. $175. d. $350.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

56. Refer to Figure 7-10. If the government imposes a price ceiling of $70 in this market, then producer surplus

will decrease by a. $50. b. $125. c. $150. d. $200.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

500 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Figure 7-11

PriceSupplyP2AP1CGBDQ1Q2Quantity57. Refer to Figure 7-11. When the price is P2, producer surplus is

a. A. b. A+C. c. A+B+C. d. D+G.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

58. Refer to Figure 7-11. When the price is P1, producer surplus is

a. A. b. C. c. A+B. d. C+D.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

59. Refer to Figure 7-11. When the price falls from P2 to P1, producer surplus

a. decreases by an amount equal to C. b. decreases by an amount equal to A+B. c. decreases by an amount equal to A+C. d. increases by an amount equal to A+B.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

60. Refer to Figure 7-11. When the price rises from P1 to P2, what area represents the increase in producer

surplus? a. A b. A+B c. A+B+C d. G

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 501

61. Refer to Figure 7-11. When the price rises from P1 to P2, which area represents the increase in producer

surplus to existing producers? a. A b. A+B c. A+B+C d. G

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

62. Refer to Figure 7-11. When the price rises from P1 to P2, which area represents the increase in producer

surplus due to new producers entering the market? a. A b. B c. A+B d. G

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

63. Refer to Figure 7-11. Area A represents

a. producer surplus to new producers entering the market as the result of an increase in price from P1

to P2.

b. the increase in consumer surplus that results from an upward-sloping supply curve.

c. the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. d. the increase in producer surplus to those producers already in the market when the price increases

from P1 to P2.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

64. Refer to Figure 7-11. Area B represents

a. the combined profits of all producers when the price is P2.

b. the increase in producer surplus to all producers as the result of an increase in the price from P1 to

P2.

c. producer surplus to new producers entering the market as the result of an increase in the price from

P1 to P2.

d. that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the

price increases from P1 to P2.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

65. Refer to Figure 7-6. When the price falls from P2 to P1, which of the following would not be 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 than it was before the decrease in the

price.

d. Producer surplus would fall by area A + B.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

502 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets

66. 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.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

67. Producer surplus is the

a. area under the supply curve to the left of the amount sold. b. amount a seller is paid minus the cost of production.

c. area between the supply and demand curves, above the equilibrium price. d. cost to sellers of participating in a market.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

68. 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.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

69. Producer surplus is

a. represented on a graph by the area below the demand curve and above the supply curve. b. the amount a seller is paid minus the cost of production. c. also referred to as excess supply. d. All of the above are correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

70. Producer surplus directly measures

a. the well-being of society as a whole. b. the well-being of buyers and sellers. c. the well-being of sellers. d. sellers’ willingness to sell.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

71. Producer surplus directly measures

a. the well-being of sellers. b. production costs. c. excess demand. d. unsold inventories.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-2 LOC: Supply and demand

TOP: Producer surplus

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