Question 1

Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.

Accepted Answer

A) True 
 B)False

Question 2

A subsidy in an industry would be likely to increase the consumer surplus for buyers in that industry and increase the producer surplus for sellers in that industry.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 7-13   Refer to Exhibit 7-13.The deadweight loss occurs because the program:

Accepted Answer

A)  produces the efficient level of output at Q1. 
B)  decreases the output to less than the efficient level of output. 
C)  increases the output beyond the efficient level of output. 
D)  the cost to government is less than the gains in producer and consumer surpluses. 
A)  produces the efficient level of output at Q1. 
B)  decreases the output to less than the efficient level of output. 
C)  increases the output beyond the efficient level of output. 
D)  the cost to government is less than the gains in producer and consumer surpluses.

Question 4

A tax on a product causes a deadweight loss because:

Accepted Answer

A)  some consumer surplus is transferred from buyers to producers. 
B)  some producer surplus is transferred from producers to consumers. 
C)  some consumer and producer surplus is transferred to the government. 
D)  it distorts the incentives of producers and consumers so that the efficient level of output is not produced. 
A)  some consumer surplus is transferred from buyers to producers. 
B)  some producer surplus is transferred from producers to consumers. 
C)  some consumer and producer surplus is transferred to the government. 
D)  it distorts the incentives of producers and consumers so that the efficient level of output is not produced.

Question 5

Fred's demand schedule for movie DVDs is as follows: At $30,he would buy 1; at $25,he would buy two; at $15,he would buy 3; and at $10,he would buy 4.If the price of movie DVDs equals $25,the consumer surplus Fred receives from purchasing movie DVDs would be:

Accepted Answer

A)  zero. 
B)  $5. 
C)  $25. 
D)  $55. 
A)  zero. 
B)  $5. 
C)  $25. 
D)  $55.

Question 6

Exhibit 7-10   Refer to Exhibit 7-10.The consumer surplus before the subsidy is area

Accepted Answer

A)  c + d 
B)  a + b + e 
C)  a + b 
A)  c + d 
B)  a + b + e 
C)  a + b

Question 7

The difference between the value of a good to sellers and its price is known as:

Accepted Answer

A)  consumer surplus. 
B)  producer surplus. 
C)  demand. 
D)  supply. 
A)  consumer surplus. 
B)  producer surplus. 
C)  demand. 
D)  supply.

Question 8

Producer surplus is always the total area below the demand curve and above the supply curve.

Accepted Answer

A) True 
 B)False

Question 9

After a tax is imposed,

Accepted Answer

A)  consumers pay a higher price. 
B)  consumers lose consumer surplus. 
C)  producers lose producer surplus. 
D)  all of the above are true. 
A)  consumers pay a higher price. 
B)  consumers lose consumer surplus. 
C)  producers lose producer surplus. 
D)  all of the above are true.

Question 10

Exhibit 7-7   Refer to Exhibit 7-7.When the price rises from P1 to P2,consumer surplus

Accepted Answer

A)  increases by area D + E 
B)  increases by area B + C 
C)  decreases by area B + C 
D)  decreases by area C 
A)  increases by area D + E 
B)  increases by area B + C 
C)  decreases by area B + C 
D)  decreases by area C

Question 11

Exhibit 7-13   Refer to Exhibit 7-13.After the implementation of the deficiency payment program,the total welfare is the area:

Accepted Answer

A)  a + b + c + d 
B)  c + d + b + e 
C)  f 
D)  a + b + c + d - f 
A)  a + b + c + d 
B)  c + d + b + e 
C)  f 
D)  a + b + c + d - f

Question 12

Which of the following is true?

Accepted Answer

A)  If the consumer is a buyer of several units of a good, the earlier units will have greater marginal value and therefore create more consumer surplus, because marginal willingness to pay falls as greater quantities are consumed in any period. 
B)  When some units of output can be produced at a cost that is lower than the market price, the seller receives a surplus, or net benefit, from producing those units. 
C)  At the market equilibrium both consumers and producers benefit from trading every unit up to the market equilibrium output. 
D)  All of the above are true. 
A)  If the consumer is a buyer of several units of a good, the earlier units will have greater marginal value and therefore create more consumer surplus, because marginal willingness to pay falls as greater quantities are consumed in any period. 
B)  When some units of output can be produced at a cost that is lower than the market price, the seller receives a surplus, or net benefit, from producing those units. 
C)  At the market equilibrium both consumers and producers benefit from trading every unit up to the market equilibrium output. 
D)  All of the above are true.

Question 13

Exhibit 7-1 Miles demands jazz CDs according to the following demand schedule:
  Refer to Exhibit 7-1.If in the schedule,total consumer surplus equals $5,the market price of a jazz CD is:

Accepted Answer

A)  $10. 
B)  $15. 
C)  $20. 
D)  $25. 
A)  $10. 
B)  $15. 
C)  $20. 
D)  $25.

Question 14

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community.
  Refer to Exhibit 7-5.If the market price of wine is $30,the total consumer surplus for the community equals:

Accepted Answer

A)  $20,000. 
B)  $30,000. 
C)  $50,000. 
D)  $60,000. 
A)  $20,000. 
B)  $30,000. 
C)  $50,000. 
D)  $60,000.

Question 15

Exhibit 7-6   Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P3,buyers lose consumer surplus equal to area ____,but gain consumer surplus equal to area ____.

Accepted Answer

A)  F; C 
B)  E; C 
C)  E + F; C 
D)  D; C + F 
A)  F; C 
B)  E; C 
C)  E + F; C 
D)  D; C + F

Question 16

Exhibit 7-9   Refer to Exhibit 7-9.The amount of consumer surplus after the tax is area:

Accepted Answer

A)  f 
B)  a 
C)  b - c 
D)  c - d 
A)  f 
B)  a 
C)  b - c 
D)  c - d

Question 17

Exhibit 7-2   Refer to Exhibit 7-2.What is the total amount of consumer surplus assuming this market reaches equilibrium?

Accepted Answer

A)  $1.00 
B)  $2.00 
C)  $3.00 
D)  $6.00 
A)  $1.00 
B)  $2.00 
C)  $3.00 
D)  $6.00

Question 18

Exhibit 7-6   Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P3,sellers lose producer surplus equal to area:

Accepted Answer

A) C + D + F. 
B) B + C + E +F. 
C) E + F. 
D) C + F. 
A) C + D + F. 
B) B + C + E +F. 
C) E + F. 
D) C + F.

Question 19

Exhibit 7-12   Refer to Exhibit 7-12.Producer surplus after the price floor is area:

Accepted Answer

A)  e + f + b + c + d 
B)  e + f 
C)  a + b + c 
D)  b + c + d 
A)  e + f + b + c + d 
B)  e + f 
C)  a + b + c 
D)  b + c + d

Question 20

If a customer had to pay a $5 entry charge to get into a roller coaster theme park,and then pay $2 per ride,she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.

Accepted Answer

A) True 
 B)False

Exam 7: Market Efficiency and Welfare

Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.

A subsidy in an industry would be likely to increase the consumer surplus for buyers in that industry and increase the producer surplus for sellers in that industry.

Exhibit 7-13 Refer to Exhibit 7-13.The deadweight loss occurs because the program:

A tax on a product causes a deadweight loss because:

Fred's demand schedule for movie DVDs is as follows: At $30,he would buy 1; at $25,he would buy two; at $15,he would buy 3; and at $10,he would buy 4.If the price of movie DVDs equals $25,the consumer surplus Fred receives from purchasing movie DVDs would be:

Exhibit 7-10 Refer to Exhibit 7-10.The consumer surplus before the subsidy is area

The difference between the value of a good to sellers and its price is known as:

Producer surplus is always the total area below the demand curve and above the supply curve.

After a tax is imposed,

Exhibit 7-7 Refer to Exhibit 7-7.When the price rises from P1 to P2,consumer surplus

Exhibit 7-13 Refer to Exhibit 7-13.After the implementation of the deficiency payment program,the total welfare is the area:

Which of the following is true?

Exhibit 7-1 Miles demands jazz CDs according to the following demand schedule: Refer to Exhibit 7-1.If in the schedule,total consumer surplus equals $5,the market price of a jazz CD is:

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community. Refer to Exhibit 7-5.If the market price of wine is $30,the total consumer surplus for the community equals:

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P3,buyers lose consumer surplus equal to area ____,but gain consumer surplus equal to area ____.

Exhibit 7-9 Refer to Exhibit 7-9.The amount of consumer surplus after the tax is area:

Exhibit 7-2 Refer to Exhibit 7-2.What is the total amount of consumer surplus assuming this market reaches equilibrium?

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P3,sellers lose producer surplus equal to area:

Exhibit 7-12 Refer to Exhibit 7-12.Producer surplus after the price floor is area:

If a customer had to pay a $5 entry charge to get into a roller coaster theme park,and then pay $2 per ride,she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

Exhibit 7-7 Refer to Exhibit 7-7.When the price rises from P₁ to P₂,consumer surplus

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P₃,buyers lose consumer surplus equal to area ,but gain consumer surplus equal to area .

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P₃,sellers lose producer surplus equal to area: