Chapter 7 Consumers, Producers, and the Efficiency of Markets
Test A
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Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. the effect of income redistribution on work effort. d. how the allocation of resources affects economic well-being. ANSWE ! d. how the allocation of resources affects economic well-being. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
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"he e/uilibrium of supply and demand in a market a. ma0imi1es the profits of producers. b. minimi1es the costs incurred by consumers. c. ma0imi1es the total benefits recei2ed by buyers and sellers. d. minimi1es the e0penditures of buyers. ANSWE ! c. ma0imi1es the total benefits recei2ed by buyers and sellers. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
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"he area below a demand cur2e and abo2e the price measures a. total surplus. b. producer surplus. c. willingness to pay. d. consumer surplus. ANSWE ! d. consumer surplus. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! N
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Willingness to pay measures the a. ma0imum amount that a buyer will pay for a good. b. amount a seller actually recei2es for a good minus the minimum amount the seller is willing to accept. c. ma0imum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. ANSWE ! a. ma0imum amount that a buyer will pay for a good. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
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,f a consumer is willing and able to pay 615.57 for a particular good but the price of the good is 618.779 then the a. market must not be a perfectly competiti2e market. b. consumer would ha2e consumer surplus of 67.57. c. consumer would not purchase the good and would not ha2e any consumer surplus. d. consumer would increase his:her willingness and ability to pay by earning more. ANSWE ! c. consumer would not purchase the good and would not ha2e any consumer surplus. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
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>7 +hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets
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,f )rock is willing to pay 6577 for a new suit9 but is able to buy the suit for 63579 his consumer surplus is a. 6?57. b. 6577. c. 6357. d. 6157. ANSWE ! d. 6157. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
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. Sharon 2alues a lawnmower at 63779 but buys it for 6.77. Sharon@s willingness to pay is a. 6577. b. 6377. c. 6.77. d. 6177. ANSWE ! b. 6377. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! . AN'(%! #
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+onsumer surplus is the a. /uantity of a good consumers get free. b. total 2alue of a good to a consumer. c. amount a consumer is willing to pay less the amount the consumer actually pays. d. amount a consumer has to pay less the amount the consumer was willing to pay. ANSWE ! c. amount a consumer is willing to pay less the amount the consumer actually pays. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
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,f you pay a price e0actly e/ual to your willingness to pay9 then a. you place little 2alue on the good. b. your consumer surplus is 67. c. your consumer surplus is negati2e. d. your willingness to pay is less than your consumer surplus. ANSWE ! b. your consumer surplus is 67. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
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+hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets >1
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efer to the graph shown. When the price rises from P1 to P.9 consumer surplus a. increases by an amount e/ual to A. b. decreases by an amount e/ual to +. c. decreases by an amount e/ual to ) A +. d. increases by an amount e/ual to ) A +. ANSWE ! c. decreases by an amount e/ual to ) A +. "#$E! % &E#1! B SE+",(N! 1 ()*E+",-E! . B A$< C( %A"! % AN'(%! N
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+onsumer surplus e/uals a. -alue to buyers D +osts of sellers. b. -alue to buyers D Amount paid by buyers. c. Amount recei2ed by sellers D +osts of sellers. d. -alue to buyers D Amount paid by buyers A Amount recei2ed by sellers D +osts of sellers. ANSWE ! b. -alue to buyers D Amount paid by buyers. "#$E! % &E#1! " SE+",(N! 1 ()*E+",-E! . ,NS" U+",(N! 1 AN'(%! N
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+ost is a measure of the a. producer shortage. b. seller@s willingness to sell. c. seller@s producer surplus. d. seller@s willingness to buy. ANSWE ! b. seller@s willingness to sell. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 3 AN'(%! #
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$roducer surplus is the a. amount a seller is paid less the cost of production. b. cost to sellers of participating in a market. c. amount represented by the area under the supply cur2e. d. area under the supply cur2e to the left of the amount sold. ANSWE ! a. amount a seller is paid less the cost of production. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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>. +hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets
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"he marginal seller is the seller who a. can produce at the lowest cost. b. has the greatest producer surplus. c. cannot compete with the other sellers in the market. d. would lea2e the market first if the price were any lower. ANSWE ! d. would lea2e the market first if the price were any lower. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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$roducer surplus is the area a. under the supply cur2e. b. below the price and abo2e the supply cur2e. c. between the supply and demand cur2es. d. under the demand cur2e9 and abo2e the price. ANSWE ! b. below the price and abo2e the supply cur2e. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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According to the graph shown9 when the price is P.9 producer surplus is e/ual to a. A. b. A A +. c. ' A E. d. A A ) A +. ANSWE ! d. A A ) A +. "#$E! % &E#1! B SE+",(N! . ()*E+",-E! 4 B A$< C( %A"! % AN'(%! N
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According to the graph shown9 when the price falls from P. to P19 producer surplus a. decreases by an amount e/ual to A. b. decreases by an amount e/ual to A A ). c. decreases by an amount e/ual to A A +. d. increases by an amount e/ual to A A ). ANSWE ! b. decreases by an amount e/ual to A A ). "#$E! % &E#1! B SE+",(N! . ()*E+",-E! 4 B A$< C( %A"! % AN'(%! N
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+hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets >3
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$roducer surplus measures the a. loss to sellers. b. well-being of sellers. c. well-being of society as a whole. d. well-being of buyers and sellers. ANSWE ! b. well-being of sellers. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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'onald produces nails at a cost of 6.77 per ton. ,f he sells the nails for 6577 per ton9 his producer surplus is a. 6>77 per ton. b. 6577 per ton. c. 6377 per ton. d. 6.77 per ton. ANSWE ! c. 6377 per ton. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 4 AN'(%! #
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,f 'ale sells a shirt for 6479 and his producer surplus from the sale is 6.39 his cost must ha2e been a. 61>. b. 6.3. c. 647. d. 683. ANSWE ! a. 61>. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 4 AN'(%! #
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We can say that the allocation of resources is efficient if a. total surplus is ma0imi1ed. b. consumer surplus is ma0imi1ed. c. producer surplus is ma0imi1ed. d. None of the abo2e is correct. ANSWE ! a. total surplus is ma0imi1ed. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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"otal surplus in a market e/uals a. -alue to buyers D Amount paid by buyers. b. -alue to buyers D +osts of sellers. c. Amount recei2ed by sellers D +osts of sellers. d. Amount recei2ed by sellers D Amount paid by buyers. ANSWE ! b. -alue to buyers D +osts of sellers. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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>4 +hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets
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,n the figure shown9 at the market-clearing e/uilibrium9 total surplus is represented by the area a. A A ) A +. b. A A ) A ' A C. c. A A ) A + A ' A E A C. d. A A ) A + A ' A E A C A B A <. ANSWE ! c. A A ) A + A ' A E A C. "#$E! % &E#1! B SE+",(N! 3 ()*E+",-E! 5 B A$< C( %A"! % AN'(%! #
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+hapter >:+onsumers9 $roducers9 and the Efficiency of %arkets >5
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According to the graph9 at /uantities greater than the e/uilibrium /uantity in a free market9 a. the cost to sellers is e/ual to the 2alue to buyers. b. the 2alue to buyers is greater than the cost to sellers. c. the cost to sellers is greater than the 2alue to buyers. d. producer surplus would be greater than consumer surplus. ANSWE ! c. the cost to sellers is greater than the 2alue to buyers. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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"he Ein2isible handF refers to the a. automatic ma0imi1ation of consumer surplus in free markets. b. marketplace as a place where go2ernment looks out for the self-interests of indi2idual participants in the market. c. e/uity that results from market forces allocating the goods produced in the market. d. marketplace guiding the self-interests of market participants into promoting general economic well-being. ANSWE ! d. marketplace guiding the self-interests of market participants into promoting general economic wellbeing. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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ANSWE ! d. how the allocation of resources affects economic well-being. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
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ANSWE ! c. ma0imi1es the total benefits recei2ed by buyers and sellers. "#$E! % &E#1! ' ()*E+",-E! 1 AN'(%! #
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ANSWE ! d. consumer surplus. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! N
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ANSWE ! a. ma0imum amount that a buyer will pay for a good. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
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ANSWE ! c. consumer would not purchase the good and would not ha2e any consumer surplus. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1 AN'(%! #
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ANSWE ! d. 6157. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! 1
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AN'(%! #
ANSWE ! b. 6377. "#$E! % &E#1! E SE+",(N! 1 ()*E+",-E! .
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AN'(%! #
ANSWE ! c. amount a consumer is willing to pay less the amount the consumer actually pays. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
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ANSWE ! b. your consumer surplus is 67. "#$E! % &E#1! ' SE+",(N! 1 ()*E+",-E! . AN'(%! #
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ANSWE ! c. decreases by an amount e/ual to ) A +. "#$E! % &E#1! B SE+",(N! 1 ()*E+",-E! . B A$< C( %A"! %
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AN'(%! N
ANSWE ! b. -alue to buyers D Amount paid by buyers. "#$E! % &E#1! " SE+",(N! 1 ()*E+",-E! . ,NS" U+",(N! 1 AN'(%! N
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ANSWE ! b. seller@s willingness to sell. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 3 AN'(%! #
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ANSWE ! a. amount a seller is paid less the cost of production. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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ANSWE ! d. would lea2e the market first if the price were any lower. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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ANSWE ! b. below the price and abo2e the supply cur2e.
"#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4
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AN'(%! #
ANSWE ! d. A A ) A +. "#$E! % &E#1! B SE+",(N! . ()*E+",-E! 4 B A$< C( %A"! %
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AN'(%! N
ANSWE ! b. decreases by an amount e/ual to A A ). "#$E! % &E#1! B SE+",(N! . ()*E+",-E! 4 B A$< C( %A"! %
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AN'(%! N
ANSWE ! b. well-being of sellers. "#$E! % &E#1! ' SE+",(N! . ()*E+",-E! 4 AN'(%! #
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ANSWE ! c. 6377 per ton. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 4
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AN'(%! #
ANSWE ! a. 61>. "#$E! % &E#1! E SE+",(N! . ()*E+",-E! 4
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AN'(%! #
ANSWE ! a. total surplus is ma0imi1ed. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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ANSWE ! b. -alue to buyers - +osts of sellers. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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ANSWE ! c. A A ) A + A ' A E A C. "#$E! % &E#1! B SE+",(N! 3 ()*E+",-E! 5 B A$< C( %A"! %
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AN'(%! #
ANSWE ! c. the cost to sellers is greater than the 2alue to buyers. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #
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ANSWE ! d. marketplace guiding the self-interests of market participants into promoting general economic well-being. "#$E! % &E#1! ' SE+",(N! 3 ()*E+",-E! 5 AN'(%! #