Question 1

Externalities are

Accepted Answer

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

Question 2

Figure 7-24 
-Refer to Figure 7-24. If the government imposes a price floor at $18, then consumer surplus is

Accepted Answer

A)   ABF.
B)   AGH.
C)   HGCD.
D)   HGBF.E) None of the above
F) All of the above

Question 3

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

Accepted Answer

A)   $125.
B)   $450.
C)   $250.
D)   $500.E) B) and D)
F) C) and D)

Question 4

Another way to think of the marginal seller is the seller who

Accepted Answer

A)   will accept the lowest price of any seller in the market.
B)   requires the highest price of any potential seller in the market.
C)   would leave the market first if the price were any lower.
D)   would leave the market last if the price falls.E) All of the above
F) C) and D)

Question 5

If the demand for light bulbs increases, producer surplus in the market for light bulbs

Accepted Answer

A)   increases.
B)   decreases.
C)   remains the same.
D)   may increase, decrease, or remain the same.E) A) and B)
F) A) and C)

Question 6

Table 7-12
The only four producers in a market have the following costs:
 
-Refer to Table 7-12. If Evan, Selena, Angie, and Kris sell the good, and the resulting producer surplus is $700, then the price must have been

Accepted Answer

A)   $200.
B)   $300.
C)   $500.
D)   $700.E) A) and B)
F) A) and C)

Question 7

Consumer surplus

Accepted Answer

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

Question 8

When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus

Accepted Answer

A)   decreases.
B)   is unchanged.
C)   increases.
D)   may increase, decrease, or remain unchanged.E) All of the above
F) A) and C)

Question 9

Welfare economics is the study of how

Accepted Answer

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.E) C) and D)
F) None of the above

Question 10

Figure 7-29 
-Refer to Figure 7-29. Which of the following statements is correct?

Accepted Answer

A)   The market is in equilibrium at Q1.
B)   At Q2, the cost to sellers exceeds the value to buyers.
C)   At Q4, the value to buyers is less than the cost to sellers.
D)   At Q3, the market is producing too much output.E) A) and D)
F) C) and D)

Question 11

Producer surplus measures the benefit to sellers from receiving a price above their costs.

Accepted Answer

A) True 
 B)False

Question 12

Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle's willingness to pay was $30.
Which of the following statements is correct?

Accepted Answer

A)   Had the price of the pencil sharpener been $24 rather than $20, only Danielle 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.E) A) and B)
F) None of the above

Question 13

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

Accepted Answer

A)   total surplus.
B)   producer surplus.
C)   consumer surplus.
D)   None of the above is correct.E) All of the above
F) None of the above

Question 14

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay.

Accepted Answer

A) True 
 B)False

Question 15

A consumer's willingness to pay directly measures

Accepted Answer

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.E) A) and B)
F) All of the above

Question 16

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

Accepted Answer

A)   $150.
B)   $350.
C)   $500.
D)   $850.E) C) and D)
F) A) and C)

Question 17

Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11,

Accepted Answer

A)   Alex experiences a decrease in consumer surplus, but Bella does not.
B)   Bella experiences a decrease in consumer surplus, but Alex does not.
C)   both Bella and Alex experience a decrease in consumer surplus.
D)   neither Bella nor Alex experiences a decrease in consumer surplus.E) None of the above
F) B) and D)

Question 18

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

Accepted Answer

A)   producer surplus equals consumer surplus in the market for wallpaper.
B)   the market for wallpaper is in equilibrium.
C)   on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 19

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

Accepted Answer

A)   Consumer surplus decreases.
B)   Consumer surplus remains unchanged.
C)   Consumer surplus increases.
D)   Consumer surplus may increase, decrease, or remain unchanged.E) A) and D)
F) C) and D)

Question 20

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

Accepted Answer

A)   would necessarily increase even if the higher price resulted in a surplus of widgets.
B)   would necessarily decrease because the higher price would create a surplus of widgets.
C)   might increase or decrease.
D)   would be unaffected.E) A) and B)
F) B) and D)

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

Welfare economics is the study of how

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When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus

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Producer surplus measures the benefit to sellers from receiving a price above their costs.

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If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

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

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Table 7-12 The only four producers in a market have the following costs: -Refer to Table 7-12. If Evan, Selena, Angie, and Kris sell the good, and the resulting producer surplus is $700, then the price must have been

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If the demand for light bulbs increases, producer surplus in the market for light bulbs

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

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Figure 7-24 -Refer to Figure 7-24. If the government imposes a price floor at $18, then consumer surplus is

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Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

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Consumer surplus

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Externalities are

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A consumer's willingness to pay directly measures

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Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

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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.

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What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

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Another way to think of the marginal seller is the seller who

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Figure 7-29 -Refer to Figure 7-29. Which of the following statements is correct?

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Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent's willingness to pay was $22, Callie's willingness to pay was $25, and Danielle's willingness to pay was $30. Which of the following statements is correct?

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Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11,

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