EC 211 Chapter 7

Refer to Table 7-10. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You hire Kevin for a price of $500. What is his producer surplus?

$50

Refer to Figure 7-22. At the quantity Q2, the marginal value to buyers

is P2, and the marginal cost to sellers is P3

Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market

may increase, decrease, or remain unchanged

Many economists believe that restrictions against ticket scalping result in each of the following except

shorter lines at cultural and sporting events

Producer surplus directly measures

the well-being of sellers

Total surplus is equal to

value to buyer - cost to sellers

The 2005 Boston Globe article discussing ticket scalping points out that the price people will pay for tickets will rise when

supply is limited and demand is not limited

Welfare economics is the study of how

the allocation of resources affects economic well-being

Anita sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $3.50 per knife for as many knives as Anita is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.50, the third knife for $3.00, and the fourth knife for $3.50. Assume Anita is rational in deciding how many knives to sharpen. Her producer surplus is

$3.00 3.50-2.00=1.50 3.50-2.50=1.00 3.50-3.00=.50 1.50+1.00+.50=$3.00

Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is

$48 Consumer surplus=1/2(12-4)x12

Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is

$8,500 24,000-15,500= 8,500

At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for

$9.50 Cost to make 1 cake= $3. Therefore Cost of 3 cakes= $3*3=$9. Producer Surplus of Nick's bakery=$19.50 Thus, Selling Price of 3 cakes= $19.50+$9=$28.50 Therefore, Selling Price of 1 cake= $28.5/3=$9.5 each

Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11,

Alex experiences a decrease in consumer surplus, but Bella does not

Refer to Figure 7-17. Which area represents total surplus in the market when the price is P1?

B+C

If the cost of producing sofas decreases, then consumer surplus in the sofa market will

increase When the cost of production decreases, the marginal cost , the marginal cost of production also decreases leading the shift of the curve towards right. The supply curve also shifts towards right as the marginal cost is in itself the supply curve of a firm. With shift of the supply curve the equilibrium quantity increases and equilibrium price decreases from Q to Q'and P to P'

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Which of the following market outcomes is efficient?

Firm A produces a monitor that David buys

Consumer surplus

measures the benefits buyers receive from participating in a market

If the current allocation of resources in the market for hammers is inefficient, then it must be the case that

the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of resources

Refer to Figure 7-15. At the equilibrium price, producer surplus is

$100 A=1/2(10)(20)

Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be

$18

Refer to Table 7-2. If the market price is $5.50, the consumer surplus in the market will be

$4.50 (8.5-5.5)+(7-5.5)+(5.5-5.5) =3+1.5+0 = 4.5

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles? (i)Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. (ii)Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

(ii) only

Refer to Figure 7-2. When the price is P1, consumer surplus is

A+B+C

Which of the following is correct?

Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur?

The allocation of kidneys would be fair

Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you bought this week, you paid a price exactly equal to your willingness to pay. Then

Your consumer surplus on the last tomato you bought is zero

Producer surplus measures the

benefits to sellers of participating in a market

If the demand for leather decreases, producer surplus in the leather market

decreases

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it Group of answer choices

maximizes the combined welfare of buyers and sellers

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that

the market for wallpaper is in equilibrium