Chapter 7 - Consumers, Producers, and the Efficiency of Markets + Chapter 6 Quiz Q/A

Graphically producer surplus is the area between: a. The supply curve and the market price. b. The market price and the quantity produced. c. The supply curve and the quantity produced. d. The supply curve and the demand curve.

a. The supply curve and the market price.

The surplus caused by a binding price floor will be greatest if ________. a. both supply and demand are elastic b. both supply and demand are inelastic c. supply is inelastic and demand is elastic d. demand is inelastic and supply is elastic

a. both supply and demand are elastic

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

a. decreases consumer surplus

Studies show that a 10 percent increase in the minimum wage ________. a. decreases teenage employment by about 1 to 3 percent b. increases teenage employment by about 1 to 3 percent c. increases teenage employment by about 10 to 15 percent d. decreases teenage employment by about 10 to 15 percent

a. decreases teenage employment by about 1 to 3 percent

The burden of a tax falls more heavily on the buyers in a market when ________. a. demand is inelastic and supply is elastic b. demand is elastic and supply is inelastic c. both supply and demand are elastic d. both supply and demand are inelastic

a. demand is inelastic and supply is elastic

An increase in the price of a good along a stationary supply curve ________. a. increases producer surplus b. does all of the answer choices c. improves market equity d. decreases producer surplus

a. increases producer surplus

When a tax is collected from the buyers in a market, ________. a. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers b. the tax burden falls most heavily on the buyers c. the buyers bear the burden of the tax d. the sellers bear the burden of the tax

a. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers

If the price of an ice-cream cone falls to $3, the consumer surplus of Alexis, Bruno, and Camila increases by _________. a. $6 b. $7 c. $8 d. $9

b. $7

Alexis, Bruno, and Camila each want an ice-cream cone. Alexis is willing to pay $12, Bruno is willing to pay $8, and Camila is willing to pay $4. The market price is $6. Consumer surplus equals _________. a. $6 b. $8 c. $14

b. $8

Which of the following takes place when a tax is placed on a good? a. A decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold b. An increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold c. A decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold d. An increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold

b. An increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

Which of the following statements about the burden of a tax is correct? a. The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavorable to them. b. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation. c. The burden of a tax lands on the side of the market (buyers or sellers) from which it is collected. d. The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good.

b. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.

Suppose the equilibrium price for apartments is $1,500 per month and the government imposes rent controls of $900 per month. Which of the following is unlikely to occur as a result of the rent controls? a. Landlords may discriminate among apartment renters. b. The quality of apartments will improve. c. There will be a shortage of housing. d. Landlords may be offered bribes to rent apartments. e. There may be long lines of buyers waiting for apartments.

b. The quality of apartments will improve.

Suppose there are three identical mugs available to be purchased. Buyer 1 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 mugs will be sold and what is the value of consumer surplus in this market? a. Three mugs will be sold, and consumer surplus is $0. b. Two mugs will be sold, and consumer surplus is $5. c. One mug will be sold, and consumer surplus is $30. d. Three mugs will be sold, and consumer surplus is $80. e. One mug will be sold, and consumer surplus is $5

b. Two mugs will be sold, and consumer surplus is $5.

If a market generates a side effect or externality, then free market solutions ________. a. generate equality b. are inefficient c. are efficient d. maximize producer surplus

b. are inefficient

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

b. below the demand curve and above the supply curve

An efficient allocation of resources maximizes _______. a. consumer surplus minus producer surplus b. consumer surplus plus producer surplus c. producer surplus d. consumer surplus

b. consumer surplus plus producer surplus

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the ________. a. supply curve downward by the size of the tax per unit b. demand curve downward by the size of the tax per unit c. demand curve upward by the size of the tax per unit d. supply curve upward by the size of the tax per unit

b. demand curve downward by the size of the tax per unit

The burden of a tax falls more heavily on the sellers in a market when ________. a. demand is inelastic and supply is elastic b. demand is elastic and supply is inelastic c. both supply and demand are elastic d. both supply and demand are inelastic

b. demand is elastic and supply is inelastic

Eric has five table tennis paddles and Alicia has none. A paddle costs $50 to produce. If Eric values an additional paddle at $100 and Alicia values a paddle at $40, then to maximize ________. a. consumer surplus, both should receive a paddle b. efficiency, Eric should receive the additional paddle c. equality, Eric should receive the additional paddle d. efficiency, Alicia should receive the additional paddle

b. efficiency, Eric should receive the additional paddle

Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is _______. a. negative b. positive but less than the marginal seller's cost c. zero d. positive and greater than the marginal seller's cost

b. positive but less than the marginal seller's cost

Coffee clearly enhances many people's lives. Therefore, we should consume coffee until ________. a. everyone has as much as they would like b. the benefit buyers place on coffee is equal to the cost of producing it c. we must cut back on the consumption of other goods d. buyers receive no benefit from another cup of coffee

b. the benefit buyers place on coffee is equal to the cost of producing it

Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon? a. There will be a shortage of gasoline. b. A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint. c. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint. d. There will be a surplus of gasoline.

c. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.

For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. Housing b. Clothing c. Jewelry d. Food

c. Jewelry

Producer surplus measures the difference between: a. Market price and consumer price b. Market price and fixed costs c. Market price and economic costs d. Market price and accounting costs

c. Market price and economic costs

Which of the following is an example of a price floor? a. Rent controls b. Restricting gasoline prices to $2.00 per gallon when the equilibrium price is $4.00 per gallon c. The minimum wage d. All of the answer choices are price floors.

c. The minimum wage

Which side of the market is more likely to lobby government for a price floor? a. Neither buyers nor sellers desire a price floor. b. Both buyers and sellers desire a price floor. c. The sellers d. The buyers

c. The sellers

Which of the following statements about a binding price ceiling is true? a. The surplus created by the price ceiling is greater in the long run than in the short run. b. The shortage created by the price ceiling is greater in the short run than in the long run. c. The shortage created by the price ceiling is greater in the long run than in the short run. d. The surplus created by the price ceiling is greater in the short run than in the long run.

c. The shortage created by the price ceiling is greater in the long run than in the short run.

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 below the market equilibrium price b. choose a price above 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. maximize consumer surplus b. generate equality c. are inefficient d. are efficient

c. are inefficient

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

c. below the demand curve and above the price

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that ________. a. falls entirely on sellers b. is evenly distributed between buyers and sellers c. falls more heavily on buyers d. falls more heavily on sellers

c. falls more heavily on buyers

A binding price ceiling creates a(n) ________. a. surplus b. shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price c. shortage d. equilibrium

c. shortage

Within the supply-and-demand model, a tax collected from the sellers of a good shifts the ________. a. demand curve downward by the size of the tax per unit b. demand curve upward by the size of the tax per unit c. supply curve upward by the size of the tax per unit d. supply curve downward by the size of the tax per unit

c. supply curve upward by the size of the tax per unit

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 they are willing to pay for a good d. that buyer's minimum amount they are willing to pay for a good e. none of the answer choices

c. that buyer's maximum amount they are willing to pay for a good

The demand curve for cookies slopes downward. When the price is $3 per cookie, the quantity demanded is 100. If the price falls to $2, what happens to consumer surplus? a. It rises by less than $100. b. It falls by more than $100. c. It falls by less than $100. d. It rises by more than $100.

d. It rises by more than $100.

Which of the following is an example of consumer surplus? a. Ten people want to buy a pizza but only 4 pizzas are offered for sale. b. At the end of the week, Tami has $10 in income more than her expenditures. c. Sellers are offering 10 pizzas for sale, but only 7 are purchased. d. Kelly is willing to pay $5 for a pizza but she only has to pay $3.

d. Kelly is willing to pay $5 for a pizza but she only has to pay $3.

Graphically, consumer surplus is the area between: a. The demand curve and the quantity demanded. b. The demand curve and the quantity supplied. c. The demand curve and the supply curve. d. The demand curve and the market price.

d. The demand curve and the market price.

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

d. above the supply curve and below the price

If a market is efficient, then ________. a. the market allocates output 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 answer choices are correct e. none of the answer choices are correct

d. all of the answer choices are correct

For a price ceiling to be a binding constraint on the market, the government must set it ________. a. precisely at the equilibrium price b. above the equilibrium price c. at any price because all price ceilings are binding constraints d. below the equilibrium price

d. below the equilibrium price

If buyers are rational and there is no market failure, ________. a. competitive market solutions are efficient b. competitive market solutions generate equality c. competitive market solutions are efficient, generate equality, and maximize total surplus d. competitive market solutions are efficient and maximize total surplus e. competitive market solutions maximize total surplus

d. competitive market solutions are efficient and maximize total surplus

Isabelle values her time at $60 an hour. She spends 2 hours giving Jayla a massage. Jayla was willing to pay as much at $300 for the massage, but they negotiated a price of $200. In this transaction, _______. a. consumer surplus is $40 larger than producer surplus b. producer surplus is $20 larger than consumer surplus c. producer surplus is $40 larger than consumer surplus d. consumer surplus is $20 larger than producer surplus

d. consumer surplus is $20 larger than producer surplus

When a market is in equilibrium, the buyers are those with the ________ willingness to pay and the sellers are those with the ________ costs. a. lowest; highest b. lowest; lowest c. highest; highest d. highest; lowest

d. highest; lowest

Adam Smith's "invisible hand" concept suggests that a competitive market outcome ________. a. generates equality among the members of society b. maximizes total surplus and generates equality among the members of society c. minimizes total surplus d. maximizes total surplus

d. maximizes total surplus

A tax of $10.00 per night on hotel rooms ________. a. decreases the price the sellers receive by $10.00 per night b. increases the price the buyers pay by precisely $5.00 and reduces the price received by sellers by precisely $5.00 c. increases the price the buyers pay by $10.00 per night d. places a tax wedge of $10.00 between the price the buyers pay and the price the sellers receive

d. places a tax wedge of $10.00 between the price the buyers pay and the price the sellers receive

A price floor ________. a. sets a legal maximum on the price at which a good can be sold b. is not a binding constraint if it is set above the equilibrium price c. always determines the price at which a good must be sold d. sets a legal minimum on the price at which a good can be sold

d. sets a legal minimum on the price at which a good can be sold

If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then ________. a. consumer surplus is maximized b. producer surplus is maximized c. the value placed on the last unit of production by buyers exceeds the cost of production d. the cost of production on the last unit produced exceeds the value placed on it by buyers e. total surplus is maximized

d. the cost of production on the last unit produced exceeds the value placed on it by buyers

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 answer choices

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

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

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

If a buyer's willingness to pay for a new Toyota is $40,000 and they are able to actually buy it for $38,000, their consumer surplus is ________. a. $38,000 b. $40,000 c. $0 d. $78,000 e. $2,000

e. $2,000

Suppose that the price of a concert ticket is $300. Manu values the ticket at $400. It costs $200 for the seller to provide the ticket. What is the value of total surplus if Manu buys the concert ticket? a. $500 b. $400 c. $300 d. $100 e. $200

e. $200

consumer surplus

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

producer surplus

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

marginal buyer

the buyer who would leave the market first if the price were any higher

willingness to pay

the maximum amount that a buyer will pay for a good

equality

the property of distributing economic prosperity uniformly among the members of society

efficiency

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

welfare economics

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

total surplus

the sum of consumer surplus and producer surplus

cost

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