Microeconomics 110 Exam 1.3

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to $4. $16. $20. $36.

$4.

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? Consumer surplus increases. Consumer surplus decreases. Consumer surplus will not change consumer surplus; only producer surplus changes. Consumer surplus depends on what event led to the increase in the price of oak lumber.

Consumer surplus decreases.

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income? Consumer surplus decreases. Consumer surplus remains unchanged. Consumer surplus increases. Consumer surplus may increase, decrease, or remain unchanged.

Consumer surplus may increase, decrease, or remain unchanged.

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? It increases. It decreases. It remains unchanged. It may increase, decrease, or remain unchanged.

It increases.

Producer surplus is the area under the supply curve. between the supply and demand curves. below the price and above the supply curve. under the demand curve and above the price.

below the price and above the supply curve.

Total surplus is represented by the area under the demand curve and above the price. above the supply curve and up to the price. under the supply curve and up to the price. between the demand and supply curves up to the point of equilibrium.

between the demand and supply curves up to the point of equilibrium.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to: only existing sellers who now receive higher prices on the pizzas they were already selling. only new sellers who enter the market because of the higher prices. both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices. Producer surplus does not increase; it decreases.

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the consumer has consumer surplus of $2 if he or she buys the good. consumer does not purchase the good. market is not a competitive market. price of the good will fall due to market forces.

consumer does not purchase the good.

On a graph, the area below a demand curve and above the price measures producer surplus. consumer surplus. deadweight loss. willingness to pay.

consumer surplus.

On a graph, the area below a demand curve and above the price measures: producer surplus. consumer surplus. deadweight loss. willingness to pay.

consumer surplus.

If the demand for leather decreases, producer surplus in the leather market increases. decreases. remains the same. may increase, decrease, or remain the same.

decreases.

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will increase consumer surplus. reduce consumer surplus. not affect consumer surplus. Any of the above are possible.

increase consumer surplus.

If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will increase producer surplus. reduce producer surplus. not affect producer surplus. Any of the above are possible.

increase producer surplus.

When the supply of a good increases and the demand for the good remains unchanged, consumer surplus decreases. is unchanged. increases. may increase, decrease, or remain unchanged.

increases.

Consumer surplus is closely related to the supply curve for a product. is represented by a rectangle on a supply-demand graph when the demand curve is a straight, downward-sloping line. is measured using the demand curve for a product. does not reflect economic well-being in most markets.

is measured using the demand curve for a product.

Market power and externalities are examples of laissez-faire economics. public policy. market failure. welfare economics.

market failure.

When markets fail, public policy can do nothing to improve the situation. potentially remedy the problem and increase economic efficiency. always remedy the problem and increase economic efficiency. in theory, remedy the problem, but in practice, public policy has proven to be ineffective.

potentially remedy the problem and increase economic efficiency.

Moving production from a high-cost producer to a low-cost producer will lower total surplus. raise total surplus. lower producer surplus. raise producer surplus but lower consumer surplus.

raise total surplus

Consumer surplus is a good measure of economic welfare if policymakers want to maximize total benefit. minimize deadweight loss. respect the preferences of sellers. respect the preferences of buyers.

respect the preferences of buyers.

A supply curve can be used to measure producer surplus because it reflects the actions of sellers. quantity supplied. sellers' costs. the amount that will be purchased by consumers in the market.

sellers' costs.

Market failure is the inability of buyers to interact harmoniously with sellers in the market. a market to establish an equilibrium price. buyers to place a value on the good or service. some unregulated markets to allocate resources efficiently.

some unregulated markets to allocate resources efficiently.

Welfare economics is the study of how the allocation of resources affects economic well-being. a price ceiling compares to a price floor. the government helps poor people. a consumer's optimal choice affects her demand curve.

the allocation of resources affects economic well-being.

Efficiency is attained when total surplus is maximized. producer surplus is maximized. all resources are being used. consumer surplus is maximized and producer surplus is minimized.

total surplus is maximized.

Economists typically measure efficiency using the price paid by buyers. the quantity supplied by sellers. total surplus. profits to firms.

total surplus.

A seller's opportunity cost measures the value of everything she must give up to produce a good. amount she is paid for a good minus her cost of providing it. consumer surplus. out of pocket expenses to produce a good but not the value of her time.

value of everything she must give up to produce a good.

At the equilibrium price of a good, the good will be purchased by those buyers who value the good more than price. value the good less than price. have the money to buy the good. consider the good a necessity.

value the good more than price.

The maximum price that a buyer will pay for a good is called the cost. willingness to pay. equity. efficiency.

willingness to pay.

Another way to think of the marginal seller is the seller who will accept the lowest price of any seller in the market. requires the highest price of any potential seller in the market. would leave the market first if the price were any lower. would leave the market last if the price falls.

would leave the market first if the price were any lower.