Question 1

Market failure is the inability of

Accepted Answer

A)  buyers to interact harmoniously with sellers in the market. 
B)  a market to establish an equilibrium price. 
C)  buyers to place a value on the good or service. 
D)  some unregulated markets to allocate resources efficiently. 
A)  buyers to interact harmoniously with sellers in the market. 
B)  a market to establish an equilibrium price. 
C)  buyers to place a value on the good or service. 
D)  some unregulated markets to allocate resources efficiently.

Question 2

Efficiency in a market is achieved when

Accepted Answer

A)  a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. 
B)  the sum of producer surplus and consumer surplus is maximized. 
C)  all firms are producing the good at the same low cost per unit. 
D)  no buyer is willing to pay more than the equilibrium price for any unit of the good. 
A)  a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. 
B)  the sum of producer surplus and consumer surplus is maximized. 
C)  all firms are producing the good at the same low cost per unit. 
D)  no buyer is willing to pay more than the equilibrium price for any unit of the good.

Question 3

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium.

Accepted Answer

A) True 
 B)False

Question 4

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

Accepted Answer

A)  decrease, and producer surplus in the industry will decrease. 
B)  increase, and producer surplus in the industry will increase. 
C)  decrease, and producer surplus in the industry will increase. 
D)  increase, and producer surplus in the industry will decrease. 
A)  decrease, and producer surplus in the industry will decrease. 
B)  increase, and producer surplus in the industry will increase. 
C)  decrease, and producer surplus in the industry will increase. 
D)  increase, and producer surplus in the industry will decrease.

Question 5

Markets will always allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 6

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Accepted Answer

A) True 
 B)False

Question 7

Figure 7-33  
-Refer to Figure 7-33. How much is total surplus in this market at the equilibrium price?

Accepted Answer

Total surp

Question 8

Figure 7-8  
-Refer to Figure 7-8. If the government imposes a price ceiling of $80 in this market, then, assuming those with the highest willingness to pay purchase the good, consumer surplus will be

Accepted Answer

A)  $900. 
B)  $1,200. 
C)  $1,500. 
D)  $1,600. 
A)  $900. 
B)  $1,200. 
C)  $1,500. 
D)  $1,600.

Question 9

Which of the following will cause a decrease in consumer surplus?

Accepted Answer

A)  an increase in the number of sellers of the good 
B)  a decrease in the production cost of the good 
C)  sellers expect the price of the good to be lower next month 
D)  the imposition of a binding price floor in the market 
A)  an increase in the number of sellers of the good 
B)  a decrease in the production cost of the good 
C)  sellers expect the price of the good to be lower next month 
D)  the imposition of a binding price floor in the market

Question 10

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. 
A)  $1,600. 
B)  $800. 
C)  $1,400. 
D)  $700.

Question 11

Producer surplus is

Accepted Answer

A)  measured using the demand curve for a good. 
B)  always a negative number for sellers in a competitive market. 
C)  the amount a seller is paid minus the cost of production. 
D)  the opportunity cost of production minus the cost of producing goods that go unsold. 
A)  measured using the demand curve for a good. 
B)  always a negative number for sellers in a competitive market. 
C)  the amount a seller is paid minus the cost of production. 
D)  the opportunity cost of production minus the cost of producing goods that go unsold.

Question 12

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Accepted Answer

A)  deadweight loss. 
B)  willingness to pay. 
C)  consumer surplus. 
D)  producer surplus. 
A)  deadweight loss. 
B)  willingness to pay. 
C)  consumer surplus. 
D)  producer surplus.

Question 13

According to many economists, government restrictions on ticket scalping do all of the following except

Accepted Answer

A)  inconvenience the public. 
B)  reduce the audience for cultural and sports events. 
C)  waste police officers' time. 
D)  keep the cost of tickets to all consumers low. 
A)  inconvenience the public. 
B)  reduce the audience for cultural and sports events. 
C)  waste police officers' time. 
D)  keep the cost of tickets to all consumers low.

Question 14

Figure 7-15  
-Refer to Figure 7-15. Area A represents

Accepted Answer

A)  producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. 
B)  the increase in consumer surplus that results from an upward-sloping supply curve. 
C)  the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. 
D)  the increase in producer surplus to those producers already in the market when the price increases from P1 to P2. 
A)  producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. 
B)  the increase in consumer surplus that results from an upward-sloping supply curve. 
C)  the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. 
D)  the increase in producer surplus to those producers already in the market when the price increases from P1 to P2.

Question 15

Consumer surplus can be measured as the area between the demand curve and the supply curve.

Accepted Answer

A) True 
 B)False

Question 16

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. 
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.

Question 17

Table 7-2
This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke.
  
-Refer to Table 7-2. If the market price is $3.80,

Accepted Answer

A)  David's consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50. 
B)  Megan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80. 
C)  David, Laura, and Megan will be the only buyers of Vanilla Coke. 
D)  the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal. 
A)  David's consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50. 
B)  Megan's consumer surplus is $1.70 and total consumer surplus for the five individuals is $9.80. 
C)  David, Laura, and Megan will be the only buyers of Vanilla Coke. 
D)  the demand curve for Vanilla Coke, taking the five individuals into account, is horizontal.

Question 18

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 19

Figure 7-1  
-Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to

Accepted Answer

A)  $150. 
B)  $200. 
C)  $250. 
D)  $300. 
A)  $150. 
B)  $200. 
C)  $250. 
D)  $300.

Question 20

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

Accepted Answer

A) True 
 B)False

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

Market failure is the inability of

Efficiency in a market is achieved when

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium.

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

Markets will always allocate resources efficiently.

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Figure 7-33 -Refer to Figure 7-33. How much is total surplus in this market at the equilibrium price?

Figure 7-8 -Refer to Figure 7-8. If the government imposes a price ceiling of $80 in this market, then, assuming those with the highest willingness to pay purchase the good, consumer surplus will be

Which of the following will cause a decrease in consumer surplus?

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

Producer surplus is

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

According to many economists, government restrictions on ticket scalping do all of the following except

Figure 7-15 -Refer to Figure 7-15. Area A represents

Consumer surplus can be measured as the area between the demand curve and the supply curve.

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

Table 7-2 This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. -Refer to Table 7-2. If the market price is $3.80,

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?

Figure 7-1 -Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

Ten Principles of 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

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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