Econ chapter 7 review

Total surplus in a market equals

Value to buyers - Costs of sellers.

If Brock is willing to pay $400 for a new suit, but is able to buy the suit for $350, his consumer surplus is

a. $50.

If a consumer is willing and able to pay $20.00 for a particular good but only has to pay $14.00, the consumer surplus is

a. $6.00.

Refer to Figure 7-7. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the market would be equal to

a. $90.

Consumer surplus equals the

a. Value to buyers - Amount paid by buyers.

Consumer surplus is

a. a buyer's willingness to pay minus the price.

Refer to Figure 7-5. Area B represents

a. producer surplus to new producers entering the market as the result of price rising from P1 to P2.

One thing economists believe was instrumental in the survival of the Pilgrims after three years of starvation was

a. the assignment of property rights which increased productivity

The "invisible hand" refers to

a. the marketplace guiding the self-interests of market participants into promoting general economic well-being.

Refer to Figure 7-6. If price were higher than Pe,

a. total surplus would fall.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus of that purchase would be

a. zero

Roger produces computer boards. His production cost is $10 per board. He sells the boards for $25 each. His producer surplus is

b. $15 per board.

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

b. $2,300

Refer to Figure 7-3. Which area represents producer surplus at a price of P2?

b. ACF

Dallas buys strawberries, and would be willing to pay more than he now has to pay. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

b. Dallas's consumer surplus would increase.

What happens to consumer surplus if the price of a good increases?

b. It decreases.

Refer to Figure 7-8. The equilibrium (market-clearing) price is

b. P2.

Cornflakes and milk are complementary goods. A decrease in the price of corn would

b. increase consumer surplus in the market for cornflakes and increase producer surplus in the market for milk.

Cost refers to a seller's

b. opportunity cost.

Producer surplus measures the

b. well-being of sellers.

Suppose that Larry, Moe and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

b. willingness to pay.

Refer to Figure 7-8. At the market-clearing equilibrium, total surplus is represented by the area

c. A + B + C + D + E + F.

Refer to Figure 7-4. What area represents producer surplus when the price is P1?

c. C

Refer to Table 7-3. If the price is $1,100, who would be willing to supply the product?

c. Denise, Catherine and Jackson

Refer to Figure 7-5. When the price falls from P2 to P1, which of the following would NOT be true?

c. The total cost of what is now sold by sellers is actually higher.

Refer to Figure 7-1. When the price rises from P1 to P2, which would NOT be true?

c. The total value of what is now purchased by buyers is actually higher

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus

c. might increase or decrease.

Inefficiency exists in an economy when a good is

c. not being produced by the lowest-cost producers

We can say that the allocation of resources is efficient if

c. total surplus is maximized.

Marylyn and Rebecca sell lemonade on the corner. Each glass costs them $0.05 to make. At the end of the day, they have sold 50 glasses and received a total producer surplus of $12.50. That would mean that Marylyn and Rebecca sold each glass for

d. $0.30.

Refer to Figure 7-7. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus to producers already in the market would be equal to

d. $480.

Which of the following would NOT be true concerning a seller's cost?

d. Since sellers cannot set the price for their product, they must be willing to sell their product at any price.

Many economists believe that restrictions against ticket scalping will cause each of the following EXCEPT

d. fewer cultural and sporting events planned.

Refer to Figure 7-9. For the quantity Q3, the value to buyers

d. is P3 and the cost to sellers is P2.

Refer to Figure 7-5. Area A represents

d. the increase in producer surplus to those producers already in the market when price rises from P1 to P2 .

A simultaneous increase in both the demand for and the supply of radios would imply that

d. the value of radios to consumers has increased and the cost of producing radios has decreased.

Refer to Figure 7-3. Which area represents the increase in producer surplus when the price rises from P1 to P2?

e. AFEB

In a market, total surplus is

equal to producer surplus+consumer surplus

With respect to welfare economics, the equilibrium price of a product is considered to be the best price because it

maximizes the total welfare of buyers and sellers.

Total surplus in a market is the total area under

the demand curve and above the supply curve left of equilibrium quantity.