Microeconomics - Practice Test 04: Consumer and Producer Surplus

The accompanying table contains the willingness to pay for 5 students in the market for a new tablet. Identify which portion of the demand curve below represents each individual.

Francisco is D Lily is C Amanda is B Julio is E Anthony is A

An economic signal is a. some information that helps people to make better decisions economically. b. the ability for an owner to choose to do whatever they want with the goods that they own so that they can better themselves off. c. a measure of how efficient an economy is. d. a "lemon."

a. some information that helps people to make better decisions economically.

Please identify the statements about property rights as either true or false. a. Property rights include the right to buy or sell one's resources and goods. b. Property can be tangible or intangible. c. The enforcement of property rights prevents many mutually beneficial transactions from occurring. d. All countries are equally effective at enforcing property rights.

a. true b. true c. false d. false

Below is the market for nonfat decaf lattes. Shade total consumer surplus (CS) on the graph by correctly placing the CS shaded area.

Refer to picture

Consider the accompanying supply and demand graph. a. What is the value of consumer surplus? b. What is the value of producer surplus? c. What is the value of total (also called social or economic) surplus?

a. $11.25 b. $8.75 c. $20

Amazon has a "Lightning Deal" where it slashes the price of one item. At 3:15 p.m. today, they announced that the item was a new tablet with a sales price of $150 which is less than half the original price. The table contains the maximum willingness to pay of five college students wanting to buy a tablet on Amazon. a. What is total consumer surplus for the five students? b. If the price increases from $150 to $350, what is the change in total consumer surplus?

a. $800 b. $-600

a. CONSUMER surplus is equal to the difference between 1. the minimum price a buyer is willing to pay and the market price. 2. the minimum price a seller is willing to accept and the market price. 3. the maximum price a buyer is willing to pay and the market price. 4. the maximum price a seller is willing to accept and the market price. b. CONSUMER surplus is shown graphically as the area 1. under the demand curve and below the market price. 2. above the supply curve and above the market price. 3. under the demand curve and above the market price. 4. above the supply curve and below the market price.

a. 3. the maximum price a buyer is willing to pay and the market price. b. 3. under the demand curve and above the market price.

The management at MooseWoods Park is trying to decide whether to replace their portable toilets with flush toilets at the very popular MooseWoods Campground, as well as how many flush toilets to install, if they do choose to install them. They concluded that they will install flush toilets if the total surplus is greater than $50 in relation to the number of flush toilets at the equilibrium and the cost per campsite per night. Installing flush toilets will involve an increase in the cost per campsite per night. Researchers have calculated the demand and supply curves for flush toilets at this park and discovered that they are both perfectly straight lines. At $35 per campsite per night, no one will want flush toilets. At $0 per campsite per night, campers will demand seven flush toilets. Managers are willing to supply no flush toilets at the current campsite cost of $5 per night, but are willing to supply eight flush toilets at $25 per campsite per night. Please use the supply, demand and total surplus information to answer the three questions. a. What is the number of flush toilets desired at the equilibrium point? b. What is the total surplus? c. Will the managers install the number of flush toilets determined in the first question? 1. not enough information to determine 2. yes 3. no

a. 4 b. $60 c. yes

a. PRODUCER surplus is the difference between 1. the maximum price a buyer is willing to pay and the market price. 2. the maximum price a seller is willing to accept and the market price. 3. the market price and the minimum price a buyer is willing to pay. 4. the market price and the minimum price a seller is willing to accept. b. PRODUCER surplus is shown graphically as the area 1. above the supply curve and below the market price. 2. above the supply curve and above the market price. 3. under the demand curve and above the market price. 4. under the demand curve and below the market price.

a. 4. the market price and the minimum price a seller is willing to accept. b. 1. above the supply curve and below the market price.

For each scenario, decide whether it results in a producer or consumer surplus. Then calculate the resulting surplus. a. Alice is willing to spend $30 on a pair of jeans and has a coupon for $10 off. She purchases a pair of jeans that costs $35 pre-discount. b. Jeff finds steak in the supermarket priced at$16 but that he would have been willing to pay $20 for. The butcher notices the meat is near the expiration date and gives him an extra 75% off.

a. Alice receives a consumer surplus Alice's surplus: $5 b. Jeff receives a consumer surplus. Jeff's surplus: $16

The graph shows the market for pizza cutters. a. Assuming $5 to be the equilibrium price for this market, please shade in consumer surplus (CS), producer surplus (PS), and total surplus (TS). Assume Fiona is willing to pay $8 for a pizza cutter. Tim also wants one, but is only willing to pay $6 for one. At a pizza baker's convention, Fiona buys the last pizza cutter at the market price just before Tim can buy it. Tim contacts the convention organizers and complains about missing out on the last pizza cutter. The organizers refund Fiona for the pizza cutter and allow Tim to buy it at the market price. b. What happens as a result of the organizers refunding Fiona, taking the pizza cutter from her, and letting Tim buy it at the market price? 1. Consumer surplus increases. 2. Producer surplus increases. 3. Consumer surplus decreases. 4. Producer surplus decreases.

a. CS- top shaded region, above the equilibrium PS- bottom shaded region, below the equilibrium TS- over top both CS and PS b. 3. Consumer surplus decreases.

The Generator is a popular youth hostel in London located near Kings Cross. The hostel provides a bed, showers, and breakfast in their nightly fee. Suppose the quantity demanded is 0 when the price is $90 per night and 90 when the price is $10 per night. Quantity supplied is 0 when the price is $10 and 100 when the price is $80. a. In the accompanying diagram, use this information to place the supply and demand curves. b. In equilibrium, how many beds are rented? c. What is the total surplus?

a. Copy picture. Supply - Left point on (0, 10). Right point on (100, 80) Demand - Left point on (0, 90). Right point on (90, 10). b. 50 beds c. $2000

Suppose that towns collect resources from their surroundings. Then, through trade, they attempt to obtain other desirable items. Mortarville, an urban town that specializes in brick and ore, wants wood to build roads so that it can expand and connect to other major cities. Mortarville has a willingness to pay $50 for wood, since wood is hard for them to obtain. Mayflair also needs wood to build grain silos for their wheat harvests. Mayflair is willing to pay $45 for wood. Timber, the only foresting company, sets the price of wood at $60. a. The change in total surplus that arises due to trades between Timber and the towns is John finds a set of wood in his garage which he is willing to sell for no less than $35. John chooses to sell the set to Mayflair for $40 instead of to Mortarville for $45. b. As a result of John's transaction with Mayflair, 1. total surplus decreased, and the market is inefficient. 2. total surplus increased, but the market is inefficient. 3. total surplus increased, and the market is efficient. 4. total surplus decreased, but the market is efficient.

a. equal to zero b. 2. total surplus increased, but the market is inefficient.