MICRO CH7

Suppose that the price of a new bicycle is $300. Sue values a new bicycle. What is the value of the total surplus if Sue buys a new bike? a. $100 b. $200 c. $300 d. $400 e. $500

$200 TS= (400-300)+(300-200) TS= 100+100 TS=200

Producer surplus is the area a. above the supply curve and below the price. b. below the supply curve and above the price. c. above the demand curve and below the price. d. below the demand curve and above the price. e. below the demand curve and above the supply curve.

A. above the supply curve and below the price

An increase in the price of a good along a stationary supply curve a. Increases producer surplus b. Decreases producer surplus c. Improves market equity d. Does all of the above

A. increases producer surplus

Suppose there are three identical vases available to be purchased. Buyer is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market? a. One vase will be sold, and consumer surplus is $30. b. One vase will be sold, and consumer surplus is $5. c. Two vases will be sold, and consumer surplus is $5. d. Three vases will be sold, and consumer surplus is $0. e. Three vases will be sold, and consumer surplus is $80.

C. two vases will be sold, and consumer surplus is $5

T/F: Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price

False; Free markets allocate output to buyers who have a willingness to pay that is about the price

T/F: Producer surplus is a measure of the unsold inventories of suppliers in a market

False; It is a measure of the benefits of market participation to the sellers in a market

T/F: Total surplus is the cost to sellers minus the value to buyers

False; Total surplus is the vale to buyers mins the cost to sellers

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

consumer surplus

Consumer surplus is the area a. above the supply curve and below the price. b. below the supply curve and above the price. c. above the demand curve and below the price. d. below the demand curve and above the price. e. below the demand curve and above the supply curve.

d. below the demand curve and above the price

the seller's cost of production is a. The seller's consumer surplus b. The seller's producer surplus c. The maximum amount the seller is willing to accept for a good d. The minimum amount the seller is willing to accept for a good e. None of the above

d. the minimum amount the seller is willing to accept for a good

the property of distributing prosperity uniformly among the members of society

equality

T/F: Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost

false; consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays

the inability of some unregulated markets to allocate resources efficiently

market failure

T/F: .Equilibrium in a competitive market maximizes total surplus

true

T/F: Consumer surplus is a good measure of buyers' benefits if buyers are rational

true

T/F: Cost to the seller includes the opportunity cost of the seller's time

true

T/F: Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market

true

T/F: The height of the supply curve is the marginal seller's cost

true

T/F: The two main types of market failure are market power and externalities

true

the maximum amount that a buyer will pay for a good

willingness to pay

Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. Everyone has as much as they would like b. The benefit buyers place on medical care is equal to the cost of producing it c. Buyers receive no benefit from another unit of medical care d. We must cut back on the consumption of other goods

B. the benefit buyers place on medical care is equal to the cost of producing it

if a market generates a side effect or externality, then free market solutions a. Generate equality b. Are efficient c. Are inefficient d.Maximize producer surplus

C. are inefficient

If a benevolent planner chooses to produce less than the equilibrium quantity of a good, then a. Producer surplus is maximized b. Consumer surplus is maximized c. Total surplus is maximized d. The value placed on the last unit of production by buyers exceeds the cost of production e. The cost of production on the last unit produced exceeds the value placed on it by buyers

D. the value placed on the last unit pf production by buyers exceeds the cost of production

T/F: If your willingness to pay for a hamburger is $3 and the price is $2, your consumer surplus is $5

False; 3.00-2.00 = 1.00

T/F: Producing more of a product always adds to total surplus

False; Producing above the equilibrium quantity reduces total surplus because units are produced for which cost exceeds the value to buyers

Joe has ten baseball gloves, and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and sue values a baseball glove at $40, then to maximize a. Efficiency, Joe should receive the glove b. Efficiency, Sue should receive the glove c. Consumer surplus, both should receive a glove d. Equity, Joe should receive the glove

a. efficiency, Joe should receive the glove

If a buyer's willingness to pay for a new Honda is $20,000 and she is able to actually buy it for $18,000, her consumer surplus is a. $0. b. $2,000. c. $18,000. d. $20,000. e. $38,000.

b. $2,000

Adam Smith's "invisible hand" concept suggests that a competitive market outcome a. Minimizes total surplus b. Maximizes total surplus c. Generates equality among the members of society d. Does both b and c

b. Maximizes total surplus

An increase in the price of a good along a stationary demand curve a. increases consumer surplus b. decreases consumer surplus c. improves the material welfare of the buyers d. improves market efficiency

b. decreases consumer surplus

In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should a. Choose a price above the market equilibrium price b. Choose a price below the market equilibrium price c. Allow the market to seek equilibrium on its own d. Choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers)

c. Allow the market to seek equilibrium on its own

If a producer has market power (can influence the price of the product in the market) then free market solutions a. Generate equality b. Are efficient c. Are inefficient d. Maximize consumer surplus

c. are inefficient

A buyer's willingness to pay is a. that buyer's consumer surplus. b. that buyer's producer surplus. c. that buyer's maximum amount he is willing to pay for a good. d. that buyer's minimum amount he is willing to pay for a good. e. none of the above.

c. that buyer's maximum amount he is willing to pay for a good.

the value of everything a seller must give up to produce a good

cost

if a market is efficient, then a. The market allocates outputs to the buyers who value it the most b. The market allocates buyers to the sellers who can produce the good at least cost c. The quantity produced in the market maximizes the sum of consumer and producer surplus d. All of the above are true e. None of the above are true

d. All of the above are true

if buyers are rational and there is no market failure, a. Free market solutions are efficient b. Free market solutions generate equality c. Free market solutions maximize total surplus d. All of the above are true e. A and c are correct

e. A and c are correct

total surplus is the area a. Above the supply curve and below the price b. Below the supply curve and above the price c. Above the demand curve and below the price d. Below the demand curve and above the price e. Below the demand curve and above the supply curve

e. below the demand curve and above the supply curve

if a benevolent social manner chooses more than the equilibrium quantity of a good, then a. Producer surplus is maximized b. Consumer surplus is maximized c. Total surplus is maximized d. The value placed on the last unit of production by buyers exceeds the cost of production e. The cost of production on the last unit produced exceeds the value placed on it by buyers

e. the cost pf production on the last unit produced exceeds the value placed on it by buyers

the property of a resource allocation of maximizing the total surplus received by all members of society

efficiency

the amount of a seller is paid for a good minus the seller's cost of providing it

producer surplus

T/F: If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases

true

T/F: Producer surplus is the area above the supply curve and below the price

true

T/F: The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient

true

the study of how the allocation of resources affects economic well-being

welfare economics