Consumers, Producers, and the Efficiency of Markets

At the equilibrium price of a good, the good will be purchased by buyers who

value the good more than the price

Cost is a measure of the:

seller's willingness to sell

consumer surplus

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

Producer surplus is:

the amount a seller is paid minus the cost of production

consumer surplus measures:

the benefit buyers receive from participating in a market

We can say that the allocation of resources is efficient if:

total surplus is maximized

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at

$20

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

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is:

$80

Welfare economics is the study of:

how the allocation of resources affects economic well-being

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that the market for wallpaper is:

in equilibrium.

Total surplus: a. can be used to measure a market's efficiency. b. is the sum of consumer and producer surplus. c. is the value to buyers minus the cost to sellers. d. All of the above are correct.

All are correct

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases.

All else equal, what happens to consumer surplus if the price of a good decreases?

Consumer surplus increases.

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts?

It increases

At the equilibrium price of a good, the good will be sold by the sellers whose cost:

is less than price.

Which of the following will cause an increase in consumer surplus? a. an increase in the production cost of the good b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good d. the imposition of a binding price floor in the market

a technological improvement in the production of a good

Which of the following is correct? a. Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced. b. Equality can be judged on positive grounds whereas efficiency requires normative judgments. c. Efficiency is more difficult to evaluate than equality. d. Equality and efficiency are both maximized in a society when total surplus is maximized.

a. Efficiency deals with the size of the economic pie, and equality deals with how fairly the pie is sliced.

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct? a. For the three individuals together, consumer surplus amounts to $35. b. Having bought the cell phone, Kristen is better off than she would have been had she not bought it. c. Had the price of the cell phone been $95 rather than $80, Katie and Kendra definitely would have been buyers and Kristen definitely would not have been a buyer. d. The fact that all three individuals paid $80 for the same type of cell phone indicates that each one placed the same value on that cell phone.

a. For the three individuals together, consumer surplus amounts to $35.

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes decreases, and the consumer surplus in the market for red wine:

also decreases.

On a graph, consumer surplus is represented by the area:

below the demand curve and above the price

Producer surplus is the area:

below the price and above the supply curve

Producer surplus measures the:

benefits to sellers of participating in a market

Total surplus is represented by the area:

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

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate decreases and producer surplus:

decreases

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the consumer:

does not purchase the good.