Ch7 – Consumers, Producers And The Efficiency Test Bank Docx - Principles of Microeconomics ANZ Edition Test Bank by Joshua Gans. DOCX document preview.
CHAPTER 7 – Consumers, producers and the efficiency of markets
TRUE/FALSE
1. The highest price a buyer is prepared to spend on a good, is that buyer’s willingness to pay.
DIF: Easy TOP: Willingness to pay
2. As a general rule, a consumer’s willingness to pay is never greater than twice the product’s price.
DIF: Easy TOP: Willingness to pay
3. Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.
DIF: Easy TOP: Willingness to pay
4. For any given quantity, the price on a supply curve represents the marginal buyer’s willingness to pay.
DIF: Easy TOP: Using the demand curve to measure consumer surplus
5. Information regarding the consumer’s willingness to pay can be derived from the demand curve.
DIF: Easy TOP: Using the demand curve to measure consumer surplus
6. To measure the total consumer surplus in a market, the area above the demand curve is added to the area below the price.
DIF: Easy TOP: Figure 7.3: How the price affects consumer surplus
7. The height of the demand curve measures the value buyers place on the good, as measured by their willingness to pay for it.
DIF: Easy TOP: Figure 7.3: How the price affects consumer surplus
8. If a consumer is not willing to purchase a product, her willingness to pay must be below the market price.
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
9. Suppose a market clears and this generates an equilibrium price and quantity. An important outcome of this equilibrium is that it maximises the total benefits to both buyers and sellers.
DIF: Easy TOP: Evaluating the market equilibrium
10. When the market price of a good falls, consumer surplus increases because (1) the consumer surplus received by existing buyers becomes larger and (2) more buyers enter the market at the lower price.
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
11. In all markets consumer surplus measures the economic wellbeing in that market.
DIF: Moderate TOP: What does consumer surplus measure?
12. For producers, the willingness to sell is equivalent to the marginal cost of the product.
DIF: Moderate TOP: Using the supply curve to measure producer surplus
13. Producer surplus is the amount a seller is paid minus the cost of production.
DIF: Easy TOP: Using the supply curve to measure producer surplus
14. Lee can sell coffee at $3 per cup. The market equilibrium price of coffee is $3.50. Suppose Lee sells 100 cups of coffee. The producer surplus captured by Lee is $100.
DIF: Moderate TOP: Using the supply curve to measure producer surplus
15. Suppose Jess can sell fruit smoothies for $5. The market price of fruit smoothies is $4.50. If Jess decided to produce 100 smoothies, her producer surplus would be positive $50.
DIF: Moderate TOP: Using the supply curve to measure producer surplus
16. The producer surplus in a market is the area above the price plus the area below the demand curve.
DIF: Easy TOP: Using the supply curve to measure producer surplus
17. The tools of consumer surplus and producer surplus enables us to determine whether free-market allocation of resources is desirable.
DIF: Easy TOP: Market efficiency
18. Total surplus in a market is consumer surplus plus firm profit.
DIF: Moderate TOP: Evaluating the market equilibrium
19. Total surplus = Value to buyers – Costs to sellers.
DIF: Easy TOP: Figure 7.8: The efficiency of the equilibrium quantity
20. Total surplus is the area under the demand curve up to the equilibrium quantity, minus the cost to producers.
DIF: Moderate TOP: Evaluating the market equilibrium
21. An allocation of resources that maximises total surplus is said to be equitable.
DIF: Moderate TOP: Evaluating the market equilibrium
22. A perfectly competitive free market will maximise total surplus.
DIF: Moderate TOP: Evaluating the market equilibrium
23. Efficiency is related to the size of the economic pie, whereas equity is related to how the pie gets sliced and distributed.
DIF: Easy TOP: Conclusion: Market efficiency and market failure
24. The less elastic demand is, the higher the consumer surplus ceteris paribus.
DIF: Difficult TOP: Evaluating the market equilibrium
25. Many economists believe that a market in human organs would lead to both an efficient allocation and fair distribution of organs.
DIF: Moderate TOP: Figure 7.8: The efficiency of the equilibrium quantity
26. Many economists believe that a market in human organs would lead to an efficient allocation of organs.
DIF: Moderate TOP: Figure 7.8: The efficiency of the equilibrium quantity
27. If all sellers in the market have an identical willingness to sell, then producer surplus will be zero.
DIF: Difficult TOP: Evaluating the market equilibrium
28. Efficiency refers to whether a market outcome is fair, while equity refers to whether the maximum amount of output was produced from a given number of inputs.
DIF: Easy TOP: Figure 7.8: The efficiency of the equilibrium quantity
29. Ticket scalping leads to a reduction in economic efficiency and therefore to a reduction in economic wellbeing.
DIF: Easy TOP: Market efficiency
30. Restrictions against ticket scalping actually drive up the cost of many tickets.
DIF: Easy TOP: Market efficiency
31. Legalising ticket scalping would make everyone worse off.
DIF: Easy TOP: Market efficiency
32. In order for market outcomes to maximise the total benefits to buyers and sellers, the markets must be perfectly competitive.
DIF: Easy TOP: Market efficiency
33. If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.
DIF: Easy TOP: Market efficiency
34. Pollution and other externalities, while bothersome, do not interfere with efficiency.
DIF: Easy TOP: Market efficiency
35. Market failure refers to firms that go bankrupt because they do not produce the goods and services that consumers want.
DIF: Easy TOP: Market efficiency
36. Public policy can improve market efficiency when there are instances of market failure.
DIF: Easy TOP: Market efficiency
MULTIPLE CHOICE
1. A group of people are bidding on an internet auction for a used car. Each bidder will not bid more than a maximum amount that is unique to them. This maximum is called:
A. | a strategic price |
B. | willingness to pay |
C. | consumer surplus |
D. | price elasticity of demand |
DIF: Moderate TOP: Willingness to pay
2. Lee is willing and able to pay $250 for an iPhone, but is able to buy it for $199. Lee’s consumer surplus is:
A. | $0 |
B. | $51 |
C. | $199 |
D. | $250 |
DIF: Easy TOP: Using the demand curve to measure consumer surplus
3. Michele is willing to pay $12.00 to see St Trinians for the fourth time. She finds a theatre showing St Trinians for $12.00. Michele’s consumer surplus is:
A. | $0 |
B. | $12 |
C. | $8 |
D. | $9 |
DIF: Easy TOP: Using the demand curve to measure consumer surplus
4. Sharon is bidding on a new camera on an internet auction. She values the camera at $700 and wins the auction with a bid of $650, therefore:
A. | Sharon’s willingness to pay is $700 and her consumer surplus is 0 |
B. | Sharon’s willingness to pay is $700 and her consumer surplus is $50 |
C. | Sharon’s willingness to pay is $650 and her consumer surplus is $50 |
D. | Sharon’s willingness to pay is $650 and her consumer surplus is $0 |
DIF: Moderate TOP: Using the demand curve to measure consumer surplus
5. Amy buys a new dog for $1500. She receives consumer surplus of $300 on her purchase. Her willingness to pay is:
A. | $1500 |
B. | $300 |
C. | $1200 |
D. | $1800 |
DIF: Moderate TOP: Using the demand curve to measure consumer surplus
6. Cameron visits a sporting goods store to buy a new set of golf clubs. He has willing to pay $950 for the clubs but buys them on sale for $425. Cameron’s consumer surplus from the purchase is:
A. | $425 |
B. | $525 |
C. | $950 |
D. | $1375 |
DIF: Moderate TOP: Using the demand curve to measure consumer surplus
7. Consumer surplus is the:
A. | quantity of a good consumers get free |
B. | amount a consumer has to pay less the amount the consumer was willing to pay |
C. | amount a consumer is willing to pay less the amount the consumer actually pays |
D. | total value of a good to a consumer |
DIF: Easy TOP: Using the demand curve to measure consumer surplus
8. Suppose hail storms damage vineyards in South Australia. The supply of grapes to local winemakers declines. What happens to consumer surplus in the market for South Australian wine?
A. | it increases |
B. | there is no change |
C. | it decreases |
D. | it could rise or fall |
DIF: Moderate TOP: How a lower price raises consumer surplus
9. If you pay a price exactly equal to your willingness to pay, then:
A. | you have little consumer surplus |
B.. | your consumer surplus is negative |
C. | you have no consumer surplus |
D. | you place little value on the good |
DIF: Moderate TOP: What does consumer surplus measure?
Table 7-1
This table refers to five possible buyers’ willingness to pay for good Z.
Buyer | Willingness to pay ($) |
Cassie | 15.00 |
Jamie | 11.00 |
John | 9.50 |
Jeremy | 6.00 |
Sarah | 4.50 |
10. Refer to Table 7-1. If the market price is $6.00, the consumer surplus in the market will be:
A. | $1.50 |
B. | $17.50 |
C. | $6.00 |
D. | $0 |
DIF: Moderate TOP: What does consumer surplus measure?
11. Refer to Table 7-1. If the price of good Z is $9.99, who will not purchase the good?
A. | Jeremy and Sarah |
B. | John, Jeremy and Sarah |
C. | Cassie, Jamie and John |
D. | Cassie and Jamie |
DIF: Moderate TOP: What does consumer surplus measure?
12. Consumer surplus equals the:
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 |
DIF: Easy TOP: What does consumer surplus measure?
13. The area below a demand curve and above the price measures:
A. | willingness to pay |
B. | total surplus |
C. | consumer surplus |
D. | producer surplus |
DIF: Easy TOP: What does consumer surplus measure?
14. If the cost of producing passenger motor vehicles increases, then consumer surplus will:
A. | decrease |
B. | increase |
C. | decrease, then increase |
D. | increase, then decrease |
DIF: Difficult TOP: What does consumer surplus measure?
15. Other things being equal, if the price of a good falls, the consumer surplus:
A. | decreases |
B. | increases |
C. | is unchanged |
D. | may increase, decrease or remain unchanged |
DIF: Moderate TOP: How a lower price raises consumer surplus
16. Economists generally agree that the goal in developing the concept of consumer surplus is to:
A. | make positive judgements about the desirability of market outcomes |
B. | make normative judgements about the desirability of market outcomes |
C. | measure the profit of firms producing the good |
D. | assess the forgone value when the price is too high |
DIF: Moderate TOP: What does consumer surplus measure?
Graph 7-1
17. Refer to Graph 7-1. What area represents consumer surplus when the price is P1?
A. | A |
B. | B |
C. | C |
D. | D |
DIF: Easy TOP: Evaluating the market equilibrium
18. Refer to Graph 7-1. What area represents producer surplus when the price is P1?
A. | A |
B. | B |
C. | C |
D. | D |
DIF: Easy TOP: Evaluating the market equilibrium
19. Refer to Graph 7-1. What area represents total surplus in the market when the price is P1?
A. | A + B |
B. | B + C |
C. | C + D |
D. | A + B + C + D |
DIF: Easy TOP: Evaluating the market equilibrium
Graph 7-2
20. Refer to Graph 7-2. When the price is P1, consumer surplus is:
A. | A |
B. | A + B |
C. | A + B + C |
D. | A + B + D |
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
21. Refer to Graph 7-2. At the higher price P2, consumer surplus is:
A. | A |
B. | B |
C. | A + B |
D. | A + B + C |
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
22. Refer to Graph 7-2. When the price rises from P1 to P2, consumer surplus:
A. | increases by an amount equal to A |
B. | decreases by an amount equal to B + C |
C. | increases by an amount equal to B + C |
D. | decreases by an amount equal to C |
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
23. According to Graph 7-2, area C represents:
A. | the decrease in consumer surplus that results from a downward-sloping demand curve |
B. | consumer surplus to new consumers who enter the market when the price falls from P2 to P1 |
C. | an increase in producer surplus when the quantity sold increases from Q2 to Q1 |
D. | a decrease in consumer surplus to each consumer in the market |
DIF: Difficult TOP: Figure 7.3: How the price affects consumer surplus
24. Refer to Graph 7-2. When the price rises from P1 to P2, which of the following is NOT true?
A. | the buyers who still buy the good are worse off because they now pay more |
B. | some buyers leave the market because they are not willing to buy the good at the higher price |
C. | the total value of what is now purchased by buyers is actually higher |
D. | consumer surplus in the market falls |
DIF: Difficult TOP: Figure 7.3: How the price affects consumer surplus
25. Lucy often buys fish and is able to buy it for less than she is willing-to-pay. She later learns that fish has more health benefits than she realised. She now values fish even more than before. If the market price of fish does not change then:
A. | Lucy’s consumer surplus could go up or down |
B. | Lucy’s consumer surplus will decrease |
C. | Lucy’s consumer surplus will be unaffected because the price has not changed |
D. | Lucy’s consumer surplus will increase |
DIF: Difficult TOP: Figure 7.3: How the price affects consumer surplus
26. In most markets consumer surplus:
A. | reflects economic wellbeing |
B. | reflects the total value that buyers place on goods or services |
C. | reflects the benefit to buyers mandated by government |
D. | all of the above are correct |
DIF: Moderate TOP: What does consumer surplus measure?
27. Out-of-pocket expenses plus the value of the seller’s own resources used in production are considered to be:
A. | the seller’s total revenue |
B. | the seller’s consumer surplus |
C. | producer surplus |
D. | the cost of production |
DIF: Moderate TOP: Cost and the willingness to sell
28. The economic meaning of cost is:
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 |
DIF: Easy TOP: Cost and the willingness to sell
29. A seller would be willing to sell a product ONLY if the price received is:
A. | less than the cost of production |
B. | at least as great as the cost of production |
C. | equal to the cost of production |
D. | at least double the cost of production |
DIF: Easy TOP: Cost and the willingness to sell
30. Welfare economics is the study of:
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 |
DIF: Easy TOP: Market efficiency
31. At the equilibrium of supply and demand in a market:
A. | costs of producers are minimised |
B. | total benefits received by buyers and sellers are maximised |
C. | total benefits received by buyers and sellers are minimised |
D. | expenditures of buyers are maximised |
DIF: Easy TOP: Evaluating the market equilibrium
32. The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises:
A. | costs of the seller |
B. | the total welfare of buyers and sellers |
C. | the expenditure of buyers |
D. | the profit of buyers |
DIF: Easy TOP: Evaluating the market equilibrium
33. Suppose that the demand for coffee rises. This means that the producer surplus for coffee will:
A. | increase |
B. | decrease |
C. | increase or decrease because the effect is ambiguous |
D. | neither increase nor decrease because the price hasn’t changed |
DIF: Difficult TOP: Market efficiency
34. The Health Ministry announces that eating chocolate increases tooth decay. As a result, the equilibrium market price _____ and producer surplus of chocolate _____.
A. | increases and increases |
B. | increases and decreases |
C. | decreases and decreases |
D. | decreases and increases |
DIF: Difficult TOP: Evaluating the market equilibrium
35. Suppose consumer income increases. If wine is a normal good, what will happen to the equilibrium price and producer surplus?
A. | both the equilibrium price and the producer surplus will decrease |
B. | both the equilibrium price and the producer surplus will increase |
C. | the equilibrium price will decrease and the producer surplus will increase |
D. | the equilibrium price will increase and the producer surplus will decrease |
DIF: Difficult TOP: Evaluating the market equilibrium
36. Which of the following would be true of the seller’s cost?
A. | the seller would be eager to sell her services at a price higher than her cost |
B. | the seller would refuse to sell her services at a price lower than her cost |
C. | the seller would be indifferent about selling her services at a price equal to her cost |
D. | all of the above are true |
DIF: Moderate TOP: Cost and the willingness to sell
37. Producer surplus is the:
A. | amount represented by the area under the demand curve |
B. | amount a seller is paid less the cost of production |
C. | amount represented by the area under the supply curve |
D. | amount a seller is paid plus the cost of production |
DIF: Easy TOP: Cost and the willingness to sell
Table 7-2
The costs of five possible sellers
Seller | Cost ($) |
Kyle | 18 |
Nathan | 15 |
Chelsea | 10 |
Hillary | 7.50 |
Landon | 5 |
38. Refer to Table 7-2. If the market price is $10, the producer surplus in the market will be:
A. | $10 |
B. | $13 |
C. | $7.50 |
D. | $0 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
39. Refer to Table 7-2. If the market price is $8, the total cost in the market will be:
A. | $13 |
B. | $12.50 |
C. | $19 |
D. | $43 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
40. Refer to Table 7-2. If the price is $11, Landon’s producer surplus will be:
A. | $5 |
B. | $11 |
C. | $6 |
D. | $11.50 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
41. Refer to Table 7-2. If the price is $11 who will be willing to supply the product?
A. | Kyle and Nathan |
B. | Kyle, Nathan and Cheslea |
C. | Cheslea, Hillary and Landon |
D. | Hillary and Landon |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
42. The marginal seller is the seller who:
A. | cannot compete with the other sellers in the market |
B. | would leave the market first if the price were any lower |
C. | can produce at the lowest cost |
D. | has the greatest producer surplus |
DIF: Easy TOP: How a higher price raises producer surplus
43. Producer surplus is the area:
A. | under the supply curve |
B. | between the supply and demand curves |
C. | below the price and above the supply curve |
D. | under the demand curve and above the price |
DIF: Easy TOP: Using the supply curve to measure producer surplus
Graph 7-3
44. According to Graph 7-3, when the price is P2, producer surplus is:
A. | A |
B. | A + C |
C. | A + B + C |
D. | D + E |
DIF: Moderate TOP: Market efficiency
45. According to Graph 7-3, at the price P1, producer surplus is:
A. | A |
B. | A + B |
C. | C |
D. | A + B + C |
DIF: Moderate TOP: Market efficiency
46. According to Graph 7-3, when the price falls from P2 to P1, producer surplus:
A. | decreases by an amount equal to A |
B. | decreases by an amount equal to A + C |
C. | decreases by an amount equal to A + B |
D. | increases by an amount equal to A + B |
DIF: Moderate TOP: Market efficiency
47. According to Graph 7-3, area B represents:
A. | producer surplus to new producers entering the market as the result of price rising from P1 to P2 |
B. | the increase in consumer surplus that results from an upward-sloping supply curve |
C. | a decrease in producer surplus to each producer in the market |
D. | an increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2 |
DIF: Moderate TOP: Market efficiency
48. Refer to Graph 7-3. When the price falls from P2 to P1, which of the following is NOT true?
A. | the sellers who still sell the good are worse off because they now receive less |
B. | some sellers leave the market because they are not willing to sell the good at the lower price |
C. | the total cost of what is now sold by sellers is actually higher |
D. | all of the above are correct |
DIF: Difficult TOP: Market efficiency
49. Donald produces nails at a cost of $700 per ton. If he sells the nails for $900 per ton, his producer surplus is:
A. | $200 per ton |
B. | $1600 per ton |
C. | $700 per ton |
D. | $900 per ton |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
50. Peter owns a sawmill and produces timber for construction. He sells the timber for $250 per cubic metre. His production costs are $90 per cubic metre. His producer surplus is:
A. | $250 per cubic metre |
B. | $90 per cubic metre |
C. | $160 per cubic metre |
D. | none of the above |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
51. If Dale sells a shirt for $80 and his producer surplus from the sale is $13, his cost must have been:
A. | $93 |
B. | $80 |
C. | $13 |
D. | $67 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
52. Khan is a financial analyst and provides a consultancy service. He charges clients $4000 per day. His producer surplus is $800. Khan’s willingness to sell is:
A. | $0 |
B. | $800 |
C. | $3200 |
D. | $4800 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
53. Nick’s willingness to sell his homemade chocolate chip biscuits is $9 per dozen. He sells them and realises a producer surplus of $5 per dozen. Nick sells his biscuits for:
A. | $14 a dozen |
B. | $9 a dozen |
C. | $5 a dozen |
D. | $4 a dozen |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
Table 7-3
Market supply and demand for good X
Price ($) | Quantity demanded | Quantity supplied |
12.00 | 0 | 36 |
10.00 | 12 | 30 |
8.00 | 24 | 24 |
6.00 | 36 | 18 |
4.00 | 48 | 12 |
2.00 | 60 | 6 |
0.00 | 72 | 0 |
54. Refer to Table 7-3. The equilibrium or market-clearing price is:
A. | $10.00 |
B. | $8.00 |
C. | $6.00 |
D. | $4.00 |
DIF: Easy TOP: Evaluating the market equilibrium
55. Refer to Table 7-3. At a price of $6.00, total surplus would be:
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 |
DIF: Moderate TOP: Evaluating the market equilibrium
56. We can say that the allocation of resources is efficient if:
A. | producer surplus is maximised |
B. | consumer surplus is maximised |
C. | total surplus is maximised |
D. | total surplus is minimised |
DIF: Easy TOP: Evaluating the market equilibrium
57. Total surplus in a market is:
A. | the total costs to sellers of providing the goods less the total value to buyers of the goods |
B. | always less than consumer surplus plus producer surplus |
C. | the total value to buyers of the goods less the costs to sellers of providing those goods |
D. | always greater than consumer surplus plus producer surplus |
DIF: Easy TOP: Evaluating the market equilibrium
58. The total surplus in a market equals:
A. | the value to buyers plus the amount paid by buyers |
B. | the amount received by sellers less the costs of sellers |
C. | the value to buyers less the costs of sellers |
D. | zero, because producer and consumer surplus cancel each other out |
DIF: Moderate TOP: Evaluating the market equilibrium
59. Total surplus in a market equals:
A. | value to buyers – amount paid by buyers |
B. | amount received by sellers – costs of sellers |
C. | producer surplus – consumer surplus |
D. | consumer surplus + producer surplus |
DIF: Easy TOP: Evaluating the market equilibrium
Graph 7-4
60. In Graph 7-4, the equilibrium (market-clearing) price is:
A. | P1 |
B. | P2 |
C. | P3 |
D. | P4 |
DIF: Easy TOP: Evaluating the market equilibrium
61. In Graph 7-4, at the market-clearing equilibrium, total consumer surplus is represented by the area:
A. | A |
B. | A + B + C |
C. | D + E + F |
D. | A + B + C + D + E + F |
DIF: Easy TOP: Evaluating the market equilibrium
62. In Graph 7-4, at the market-clearing equilibrium, total producer surplus is represented by the area:
A. | F |
B. | F + G |
C. | D + E + F |
D. | D + E + F + G + H |
DIF: Easy TOP: Evaluating the market equilibrium
63. In Graph 7-4, at the market-clearing equilibrium, total surplus is represented by the area:
A. | A + B + C |
B. | A + B + D + F |
C. | A + B + C + D + E + F. |
D. | A + B + C + D + E + F + G + H |
DIF: Easy TOP: Evaluating the market equilibrium
64. In Graph 7-4, the efficient price–quantity combination is:
A. | P1 – Q1 |
B. | P2 – Q2 |
C. | P3 – Q1 |
D. | none of the combinations are efficient |
DIF: Moderate TOP: Evaluating the market equilibrium
Graph 7-5
65. In Graph 7-5, at the quantity Q2:
A. | the market is in equilibrium |
B. | willingness to pay is greater than willingness to sell |
C. | consumer surplus plus producer surplus is maximised |
D. | willingness to pay is less than willingness to sell |
DIF: Moderate TOP: Evaluating the market equilibrium
66. In Graph 7-5, for the quantity Q3, willingness to buy:
A. | and willingness to sell are both P2 |
B. | is P1 and willingness to sell is P3 |
C. | and willingness to sell are both P3 |
D. | is P3 and willingness to sell is P2 |
DIF: Moderate TOP: Evaluating the market equilibrium
67. When a market is in equilibrium but too high for some consumers:
A. | the government will intervene to set the correct prices |
B. | the price determines which buyers and sellers participate in the market, and those unable to afford the good will opt out |
C. | those buyers who value the good less than the price choose to buy the good |
D. | those sellers whose costs are more than the price choose to produce and sell the good |
DIF: Moderate TOP: Evaluating the market equilibrium
Graph 7-6
68. In Graph 7-6, beyond the equilibrium quantity in a free market:
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 |
DIF: Moderate TOP: Figure 7.8: The efficiency of the equilibrium quantity
69. Many economists believe that a market for human organs would lead to an:
A. | inefficient allocation of organs but a fair distribution of organs |
B. | inefficient allocation of organs and an unfair distribution of organs |
C. | efficient allocation of organs but an unfair distribution of organs |
D. | efficient allocation of organs and a fair distribution of organs |
DIF: Moderate TOP: Figure 7.8: The efficiency of the equilibrium quantity
70. Economists tend to see ticket scalping as:
A. | a way for a few to profit while producing nothing of value |
B. | an inequitable interference in the orderly process of ticket distribution |
C. | a way of increasing the efficiency of ticket distribution |
D. | an unproductive activity which should be made illegal everywhere |
DIF: Moderate TOP: Market efficiency
71. Market power refers to the:
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 |
DIF: Easy TOP: Market efficiency
72. Externalities are:
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 |
DIF: Easy TOP: Market efficiency
73. Pollution is a classic example of:
A. | cost minimisation by firms |
B. | corporate greed |
C. | market failure |
D. | an efficient market outcome |
DIF: Easy TOP: Market efficiency
74. When markets fail, public policy can:
A. | do nothing to improve the situation |
B. | potentially remedy the problem and increase economic efficiency |
C. | always remedy the problem and increase economic efficiency |
D. | in theory, remedy the problem, but in practice, has proven to be ineffective |
DIF: Easy TOP: Market efficiency
SHORT ANSWER
1. Megan loves donuts. The table shown reflects the value Megan places on each donut she eats:
Value of first doughnut | $0.60 |
Value of second doughnut | $0.50 |
Value of third doughnut | $0.40 |
Value of fourth doughnut | $0.30 |
Value of fifth doughnut | $0.20 |
Value of sixth doughnut | $0.10 |
a. Use this information to construct Megan’s demand curve for donuts.
b. If the price of doughnuts is $0.20, how many donuts will Megan buy?
c. Show Megan’s consumer surplus on your graph. How much consumer surplus would she have at a price of $0.20?
d. If the price of doughnuts rose to $0.40, how many donuts would she purchase now? What would happen to Megan’s consumer surplus? Show this change on your graph.
DIF: Moderate TOP: What does consumer surplus measure?
Table A
Buyer | Willingness to pay ($) |
Greg | 90.00 |
Melissa | 85.00 |
Kendra | 80.00 |
Brian | 65.00 |
2. Use the information in Table A to fill in the blanks in Table B.
Table B
Price | Buyers | Quantity demanded |
>$90 | ||
$86-90 | ||
$81-85 | ||
$76-80 | ||
$70-75 |
Price | Buyers | Quantity demanded |
>$50 | None | 0 |
$41-50 | Greg | 1 |
$31-40 | Greg, Melissa | 2 |
$21-30 | Greg, Melissa, Kendra | 3 |
$11-20 | Greg, Melissa, Kendra | 3 |
DIF: Moderate TOP: What does consumer surplus measure?
3. Use the information in Table A to graph a demand curve for this product.
DIF: Moderate TOP: What does consumer surplus measure?
PTS: 1 DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
Table 7-4
Price of pizza | Quantity of pizza demanded | |
Fred | Frieda | |
>$15 | 0 | 0 |
$14-14.99 | 1 | 0 |
$13-13.99 | 4 | 1 |
$12-12.99 | 7 | 3 |
$11-11.99 | 10 | 5 |
$10-10.99 | 13 | 7 |
$9-9.99 | 14 | 9 |
4. Refer to Table 7-4. Given the information about Fred and Frieda’s willingness to pay for pizza, calculate the consumer surplus for Fred and for Frieda if the price of pizza is:
a. $16
b. $15
c. $13.50
d. $12
e. $5
DIF: Difficult TOP: Figure 7.3: How the price affects consumer surplus
5. Suppose the price of music downloads falls. Explain what will happen to:
a. existing buyers who were already downloading music.
b. potential buyers who have not yet begun downloading music.
c. the consumer surplus in this market.
d. the number of downloads that will now occur.
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
6. Suppose the price of DVD rentals increases. Explain what will happen to:
a. potential renters who are illegally downloading movies.
b. renters who have not yet begun downloading movies.
c. the consumer surplus in the DVD rental market.
d. the number of downloads that will now occur.
DIF: Moderate TOP: Figure 7.3: How the price affects consumer surplus
Table C
Seller | Cost ($) |
Jonathan | 900 |
Joshua | 600 |
Jessica | 300 |
Ashley | 0 |
7. Use the information in the Table C to fill in the blanks of Table D.
Table D
Price | Sellers | Quantity supplied |
>$900 | ||
$600–900 | ||
$400–600 | ||
$300–400 | ||
<$300 |
Price | Sellers | Quantity supplied |
>$900 | Jon, Josh, Jessica, Ashley | 4 |
$600–900 | Josh, Jessica, Ashley | 3 |
$400–600 | Josh, Jessica, Ashley | 3 |
$300–400 | Jessica, Ashley | 2 |
<$300 | Ashley | 0 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
8. Use the information below to graph a supply curve for this product.
Seller | Cost ($) |
Jonathan | 400 |
Joshua | 300 |
Jessica | 200 |
Ashley | 100 |
DIF: Moderate TOP: Using the supply curve to measure producer surplus
9. Suppose there is a price decrease. Assuming that nothing else changes, explain what happens to producer surplus and illustrate your answer using a supply curve.
DIF: Moderate TOP: How a higher price raises producer surplus
10. What is the total surplus in a market, and why might it be a good measure of economic wellbeing? Using a demand-supply diagram, show the areas representing total surplus.
DIF: Moderate TOP: Evaluating the market equilibrium
11. In what way(s) are free-market outcomes, where supply equals demand, beneficial to society?
DIF: Moderate TOP: Evaluating the market equilibrium
Graph 7-7
12. Refer to Graph 7-7. Explain why this graph verifies the fact that the market equilibrium (quantity) maximises the sum of producer and consumer surplus.
DIF: Difficult TOP: Figure 7.8: The efficiency of the equilibrium quantity
13. Using a demand-supply diagram, completing the labels, identify the following areas:
a. consumer surplus.
b. producer surplus.
c. total surplus.
DIF: Easy TOP: Evaluating the market equilibrium
14. Australian parrots are smuggled to overseas markets where they can command very high prices. An important innovation for smugglers was the egg vest. This meant that more parrots could be smuggled with higher survival rates and less risk of detection. If this lowered the price of black market Australian parrots, does the increase in consumer surplus necessarily represent a welfare improvement to society?
DIF: Difficult TOP: What does consumer surplus measure?
15. Antonio’s Pizza has the following willingness to sell:
Price | Quantity supplied |
$15 | 28 |
$14 | 24 |
$13 | 20 |
$12 | 16 |
$11 | 12 |
$10 | 8 |
$9 | 4 |
<$9 | 0 |
Determine Antonio’s producer surplus at a price of:
a. $10
b. $12
c. $15
d. $9
e. $7
DIF: Moderate TOP: Using the supply curve to measure producer surplus
Table 7-5
Price of pizza | Quantity of pizza demanded | |
Fred | Frieda | |
>$15 | 0 | 0 |
$14 | 1 | 0 |
$13 | 3 | 1 |
$12 | 5 | 3 |
$11 | 7 | 5 |
$10 | 9 | 7 |
$9 | 11 | 9 |
Antonio’s Pizza
Price | Quantity supplied |
$15 | 28 |
$14 | 24 |
$13 | 20 |
$12 | 16 |
$11 | 12 |
$10 | 8 |
$9 | 4 |
<$9 | 0 |
16. Based on Table 7-5, if Fred and Frieda are the only buyers in the pizza market and Antonio’s is the only seller, what is the:
a. market equilibrium price?
b. market equilibrium quantity?
c. total consumer surplus at the market equilibrium?
d. total producer surplus at the market equilibrium?
e. total benefit to society of this market?
DIF: Moderate TOP: Using the supply curve to measure producer surplus
17. Refer to Table 7-5. Is the pizza market described in the above tables efficient? Explain. Is it equitable? Explain.
DIF: Difficult TOP: Using the supply curve to measure producer surplus
18. Would a market that was characterised by unregulated pollution be classed as efficient? Why or why not?
DIF: Moderate TOP: Market efficiency
19. Many countries allow people to visit national parks, lakes or rivers for free. If a good is free in the sense of having zero market price, does this mean that the consumer surplus is also zero?
DIF: Difficult TOP: What does consumer surplus measure?
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