Question 1

Total surplus = Value to buyers - Costs to sellers.

Accepted Answer

A) True 
 B)False  True

Question 2

Externalities are:

Accepted Answer

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

Question 3

Table 7-3
Market supply and demand for good X
  
-Refer to Table 7-3. At a price of $4.00, total surplus would be:

Accepted Answer

A)  more than it would be at the equilibrium price 
B)  less than it would be at the equilibrium price 
C)  the same as it would be at the equilibrium price 
D)  there is insufficient information to say 
A)  more than it would be at the equilibrium price 
B)  less than it would be at the equilibrium price 
C)  the same as it would be at the equilibrium price 
D)  there is insufficient information to say B

Question 4

Suppose the price of music downloads falls. Explain what will happen to:
a. existing buyers who were already downloading music.
b. potential buyers who have not yet begun downloading music.
c. the consumer surplus in this market.
d. the number of downloads that will now occur.

Accepted Answer

a. Existing buyers will be better off be

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The economic meaning of cost is:

Accepted Answer

A)  a seller's willingness to sell 
B)  a seller's consumer surplus 
C)  the price the buyer pays to obtain the good 
D)  a buyer's producer surplus 
A)  a seller's willingness to sell 
B)  a seller's consumer surplus 
C)  the price the buyer pays to obtain the good 
D)  a buyer's producer surplus

Question 7

The 'invisible hand':

Accepted Answer

A)  is the name of an old radio program 
B)  is a concept used by Adam Smith to describe the virtues of free markets 
C)  is a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy 
D)  always rewards individuals for using the wellbeing of society as the basis for economic decision making 
A)  is the name of an old radio program 
B)  is a concept used by Adam Smith to describe the virtues of free markets 
C)  is a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy 
D)  always rewards individuals for using the wellbeing of society as the basis for economic decision making

Question 8

Consumer surplus equals the:

Accepted Answer

A)  value to buyers less the amount paid by buyers 
B)  amount received by sellers less the costs of sellers 
C)  value to buyers plus the amount paid by buyers 
D)  amount received by sellers plus the costs of sellers 
A)  value to buyers less the amount paid by buyers 
B)  amount received by sellers less the costs of sellers 
C)  value to buyers plus the amount paid by buyers 
D)  amount received by sellers plus the costs of sellers

Question 9

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Accepted Answer

A) True 
 B)False

Question 10

Market power refers to the:

Accepted Answer

A)  company that generates electricity to firms 
B)  buyers and sellers being price takers 
C)  ability of to influence price 
D)  market situation that only ever happens with a monopoly seller 
A)  company that generates electricity to firms 
B)  buyers and sellers being price takers 
C)  ability of to influence price 
D)  market situation that only ever happens with a monopoly seller

Question 11

Caitlin would be willing to pay $50 to see Les Misérables but buys a ticket for only $30. Caitlin values the performance at:

Accepted Answer

A)  $20 
B)  $30 
C)  $50 
D)  $80 
A)  $20 
B)  $30 
C)  $50 
D)  $80

Question 12

Total surplus in a market is consumer surplus minus producer surplus.

Accepted Answer

A) True 
 B)False

Question 13

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

Accepted Answer

A) True 
 B)False

Question 14

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises:

Accepted Answer

A)  costs of the seller 
B)  the total welfare of buyers and sellers 
C)  the expenditure of buyers 
D)  the profit of buyers 
A)  costs of the seller 
B)  the total welfare of buyers and sellers 
C)  the expenditure of buyers 
D)  the profit of buyers

Question 15

Welfare economics is the study of:

Accepted Answer

A)  how the allocation of resources affects economic wellbeing 
B)  why poor people have low incomes 
C)  the social welfare program adopted by the government 
D)  how charities deliver welfare to the needy 
A)  how the allocation of resources affects economic wellbeing 
B)  why poor people have low incomes 
C)  the social welfare program adopted by the government 
D)  how charities deliver welfare to the needy

Question 16

Given the following equations, show how equation 1 can be used to derive equation 2:
1. Total surplus = Consumer surplus + Producer surplus
2. Total surplus = Value to buyers - Cost to sellers

Accepted Answer

Start with equation 1:
Total surplus = C

Question 17

Welfare economics is the study of the welfare system.

Accepted Answer

A) True 
 B)False

Question 18

Laissez-faire is a French expression that literally means:

Accepted Answer

A)  'to make profits' 
B)  'no more taxes' 
C)  'allow them to do' 
D)  'we need protection' 
A)  'to make profits' 
B)  'no more taxes' 
C)  'allow them to do' 
D)  'we need protection'

Question 19

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Accepted Answer

A) True 
 B)False

Question 20

Graph 7-6
  
-In Graph 7-6, beyond the equilibrium quantity in a free market:

Accepted Answer

A)  the value to buyers is greater than the cost to sellers 
B)  the cost to sellers is greater than the value to buyers 
C)  cost to sellers is equal to the value to buyers 
D)  producer surplus would be greater than consumer surplus 
A)  the value to buyers is greater than the cost to sellers 
B)  the cost to sellers is greater than the value to buyers 
C)  cost to sellers is equal to the value to buyers 
D)  producer surplus would be greater than consumer surplus

Exam 7: Consumers, Producers and the Efficiency of Markets

Total surplus = Value to buyers - Costs to sellers.

Externalities are:

Table 7-3 Market supply and demand for good X -Refer to Table 7-3. At a price of $4.00, total surplus would be:

Suppose the price of music downloads falls. Explain what will happen to: a. existing buyers who were already downloading music. b. potential buyers who have not yet begun downloading music. c. the consumer surplus in this market. d. the number of downloads that will now occur.

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

The economic meaning of cost is:

The 'invisible hand':

Consumer surplus equals the:

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Market power refers to the:

Caitlin would be willing to pay $50 to see Les Misérables but buys a ticket for only $30. Caitlin values the performance at:

Total surplus in a market is consumer surplus minus producer surplus.

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises:

Welfare economics is the study of:

Given the following equations, show how equation 1 can be used to derive equation 2: 1. Total surplus = Consumer surplus + Producer surplus 2. Total surplus = Value to buyers - Cost to sellers

Welfare economics is the study of the welfare system.

Laissez-faire is a French expression that literally means:

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Graph 7-6 -In Graph 7-6, beyond the equilibrium quantity in a free market:

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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