Question 1

Figure 7-15 
-Refer to Figure 7-15. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be

Accepted Answer

A)   lower than P1.
B)   P1.
C)   between P1 and P2.
D)   higher than P2.E) A) and B)
F) B) and C)

Question 2

Figure 7-26 
-Refer to Figure 7-26. At the equilibrium price, consumer surplus is

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $1,800.E) A) and B)
F) B) and C)

Question 3

Figure 7-6 
-Refer to Figure 7-6. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

Accepted Answer

A)   $200.
B)   $400.
C)   $600.
D)   $800.E) None of the above
F) B) and C)

Question 4

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

Accepted Answer

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.E) All of the above
F) C) and D)

Question 5

Market power and externalities are examples of

Accepted Answer

A)   laissez-faire economics.
B)   public policy.
C)   market failure.
D)   welfare economics.E) B) and D)
F) B) and C)

Question 6

The welfare of sellers is measured by

Accepted Answer

A)   consumer surplus.
B)   producer surplus.
C)   total surplus.
D)   price.E) All of the above
F) A) and B)

Question 7

Table 7-18
The following table shows the willingness to pay for a good for the only four consumers in a market.
 
-Refer to Table 7-18. If the price of the good is $20, how much is the total consumer surplus?

Accepted Answer

Total cons...

Question 8

Figure 7-10 
-Refer to Figure 7-10. Which area represents producer surplus when the price is P2?

Accepted Answer

A)   BCG
B)   ACH
C)   ABGD
D)   AHGBE) B) and C)
F) A) and D)

Question 9

Scenario 7-2
Suppose market demand and market supply are given by the equations: 
-Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to  By how much does total consumer surplus increase as a result of this supply shift?

Accepted Answer

Total consumer surplus prior t...

Question 10

The distinction between efficiency and equality can be described as follows:

Accepted Answer

A)   Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers.
B)   Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers.
C)   Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost.
D)   Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.E) B) and C)
F) C) and D)

Question 11

Markets will always allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 12

Welfare economics explains which of the following in the market for televisions?

Accepted Answer

A)   The government sets the price of televisions; firms respond to the price by producing a specific level of output.
B)   The government sets the quantity of televisions; firms respond to the quantity by charging a specific price.
C)   The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.
D)   The market equilibrium price for televisions maximizes consumer welfare and minimizes producer profit.E) B) and C)
F) A) and D)

Question 13

Refer to Figure 7-11. 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

Accepted Answer

A)   $625
B)   $2,500
C)   $3,125
D)   $5,625E) A) and B)
F) A) and C)

Question 14

Figure 7-6 
-Refer to Figure 7-6. At the equilibrium price, consumer surplus is

Accepted Answer

A)   $1,600.
B)   $800.
C)   $1,400.
D)   $700.E) B) and D)
F) None of the above

Question 15

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) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

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.E) C) and D)
F) All of the above

Question 18

Producer surplus directly measures

Accepted Answer

A)   the well-being of sellers.
B)   production costs.
C)   excess demand.
D)   unsold inventories.E) A) and D)
F) A) and C)

Question 19

Market power and externalities are examples of market failures.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following equations is valid?

Accepted Answer

A)   Consumer surplus = Total surplus - Cost to sellers
B)   Producer surplus = Total surplus - Consumer surplus
C)   Total surplus = Value to buyers - Amount paid by buyers
D)   Total surplus = Amount received by sellers - Cost to sellersE) None of the above
F) All of the above

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

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

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Producer surplus directly measures

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Figure 7-10 -Refer to Figure 7-10. Which area represents producer surplus when the price is P2?

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Scenario 7-2 Suppose market demand and market supply are given by the equations: -Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to By how much does total consumer surplus increase as a result of this supply shift?

Correct AnswerverifiedTotal consumer surplus prior t...View AnswerShow Answer

The distinction between efficiency and equality can be described as follows:

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Figure 7-26 -Refer to Figure 7-26. At the equilibrium price, consumer surplus is

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Market power and externalities are examples of market failures.

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

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

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Refer to Figure 7-11. 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

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Figure 7-15 -Refer to Figure 7-15. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be

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Figure 7-6 -Refer to Figure 7-6. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by

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Table 7-18 The following table shows the willingness to pay for a good for the only four consumers in a market. -Refer to Table 7-18. If the price of the good is $20, how much is the total consumer surplus?

Correct AnswerverifiedTotal cons...View AnswerShow Answer

Welfare economics explains which of the following in the market for televisions?

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Figure 7-6 -Refer to Figure 7-6. At the equilibrium price, consumer surplus is

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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?

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Market power and externalities are examples of

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The welfare of sellers is measured by

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Markets will always allocate resources efficiently.

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Which of the following equations is valid?

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Total consumer surplus prior t...
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Total cons...
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