Chapter 4, Assignment 1

C

Marginal benefit is A) the additional cost of producing one more unit. B) the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C) the additional benefit from consuming one more unit. D) a legally determined maximum price that sellers may charge.

E

Marginal cost is A) the cost of producing output. B) a legally determined minimum price that sellers may charge. C) the difference between the lowest price a firm would be willing to accept and the price it actually receives. D) the additional benefit from consuming one more unit. E) the additional cost of producing one more unit.

A

Producer surplus is A) the difference between the lowest price a firm would be willing to accept and the price it actually receives. B) the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. C) the market price multiplied by the number of units sold by a firm. D) the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. E) the difference between the lowest price a firm would be willing to accept and marginal cost.

D

A student makes the following argument: "When the market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Briefly explain whether you agree with the student's argument. A) The student is correct because the highest price consumers are willing to pay and the lowest price firms are willing to accept are equal. B) The student is incorrect because the market price is greater than marginal cost. C) The student is incorrect because consumer surplus equals the price consumers are willing to pay for a good, which is a positive amount. D) The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed. E) The student is correct because the highest price consumers are willing to pay and the price consumers actually pay are equal.

A

Consumer and producer surplus measure the ___________ benefit rather than the _______________ benefit. A) net; total B) subjective; objective C) total; net D) marginal; additional

B

Consumer surplus and producer surplus measure the total benefit consumers and producers receive from participating in a market. A) True B) False

B

Consumer surplus is A) the difference between the highest price a consumer is willing to pay and marginal benefit. B) the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C) the highest price a consumer is willing to pay to consume a good or service. D) the difference between the lowest price a firm would be willing to accept and the price it actually receives. E) the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept.

Decreases; increases

How does consumer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, consumer surplus __________, and as the price of a good falls, consumer surplus ____________.

Increases; decreases

How does producer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, producer surplus _____________, and as the price of a good falls, producer surplus _______________.

B

On a shopping trip, Sofia decided to buy a light blue coat that had a price tag of $79.95. When she brought the coat to the store's sales clerk, Sofia was told that the coat was on sale, and she would pay 20 percent less than the price on the tag. After the discount was applied, Sofia paid $63.96, $15.99 less than the original price. The value of Sofia's consumer surplus from this purchase is A) exactly $15.99 since this is the difference between the maximum price Sofia is willing to pay for the coat and the actual price she pays. B) at least $15.99 since this is the difference between the price Sofia is willing to pay for the coat and the actual price she pays, but she could be willing to pay more than $79.95 for the coat. C) $79.95 since this is the price she is willing to pay. D) $63.96 since this is the actual price she pays.

D

Uber is an app people use to arrange transportation with drivers who use their own cars for this purpose. Customers pay for their rides with the smartphone app. Uber's price fluctuate with the demand for the service. This "surge pricing" can result in different prices for the same distance traveled at different times of day or days of the week. Annie Lowrey, a writer for the New York Times, explained that she paid $13 for a 10 p.m. two-mile trip to downtown Washington D.C. on New Year's Eve. Three hours later she paid $47 for the return trip to her home. Did she receive negative consumer surplus on her return trip? A) Yes, because $47 is too much to pay for a two-mile trip. B) Yes, because her willingness to pay was $13 based on her earlier trip. C) We don't know because we don't know if she knew the prices in advance. D) Her willingness to pay was no less than $47, so she did not receive negative consumer surplus from this trip.

D

Why is the demand curve referred to as a marginal benefit curve? A) It shows the willingness of firms to supply a product at different prices. B) It shows the difference between the price a consumer is willing to pay and the marginal benefit of consumption. C) It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. D) It shows the willingness of consumers to purchase a product at different prices. E) It shows the price consumers actually pay to consume a product.

E

Why is the supply curve referred to as a marginal cost curve? A) It shows the difference between the lowest price a firm would be willing to accept and the marginal cost of production. B) It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. C) It shows the willingness of consumers to purchase a product at different prices. D) It shows the price producers actually receive in the market. E) It shows the willingness of firms to supply a product at different prices.