ECON chapter 7

Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.

b

A seller's opportunity cost measures the a. value of everything she must give up to produce a good. b. amount she is paid for a good minus her cost of providing it. c. consumer surplus. d. out of pocket expenses to produce a good but not the value of her time.

a

All else equal, what happens to consumer surplus if the price of a good decreases? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged. d. Consumer surplus may increase, decrease, or remain unchanged.

a

Consumer surplus in a market can be represented by the a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. distance from the demand curve to the vertical axis. d. area below the demand curve and above the horizontal axis.

a

Externalities are a. side effects passed on to a party other than the buyers and sellers in the market. b. side effects of government intervention in markets. c. external forces that cause the price of a good to be higher than it otherwise would be. d. external forces that help establish equilibrium price.

a

Inefficiency exists in an economy when a good is a. not being consumed by buyers who value it most highly. b. not distributed fairly among buyers. c. not produced because buyers do not value it very highly. d. being produced with less than all available resources.

a

Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

b

Producer surplus equals a. Value to buyers - Amount paid by buyers. b. Amount received by sellers - Costs of sellers. c. Value to buyers - Costs of sellers. d. Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.

b

The "invisible hand" is a. used to describe the welfare system in the United States. b. a concept developed by Adam Smith to describe the virtues of free markets. c. a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy. d. a term used by some economists to characterize the role of government in an economy - inevitable but invisible.

b

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

c

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is a. $0.50. b. $0.60. c. $0.70. d. $1.00.

c

Another way to think of the marginal seller is the seller who a. will accept the lowest price of any seller in the market. b. requires the highest price of any potential seller in the market. c. would leave the market first if the price were any lower. d. would leave the market last if the price falls.

c

Economists say that a market where goods are not consumed by those valuing the goods most highly is a. laissez-faire.. b. unequal. c. inefficient. d. rational.

c

Market power and externalities are examples of a. laissez-faire economics. b. public policy. c. market failure. d. welfare economics.

c

Producer surplus directly measures a. the well-being of society as a whole. b. the well-being of buyers and sellers. c. the well-being of sellers. d. sellers' willingness to sell.

c

Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve and above the price.

c

A demand curve reflects each of the following except the a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good. c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire.

d

A seller's willingness to sell is a. measured by the seller's cost of production. b. related to her supply curve, just as a buyer's willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct.

d

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software? a. $50. b. $150. c. $200. d. $350

d

Consumer surplus a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. b. is represented on a supply-demand graph by the area below the price and above the demand curve. c. measures the benefit sellers receive from participating in a market. d. measures the benefit buyers receive from participating in a market.

d

In a market, the marginal buyer is the buyer a. whose willingness to pay is higher than that of all other buyers and potential buyers. b. whose willingness to pay is lower than that of all other buyers and potential buyers. c. who is willing to buy exactly one unit of the good. d. who would be the first to leave the market if the price were any higher.

d

Laissez-faire is a French expression which literally means a. to make do. b. to get involved. c. whatever works. d. allow them to do.

d

Market failure is the inability of a. buyers to interact harmoniously with sellers in the market. b. a market to establish an equilibrium price. c. buyers to place a value on the good or service. d. some unregulated markets to allocate resources efficiently

d

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

d

Welfare economics is the study of a. taxes and subsidies. b. how technology is best put to use in the production of goods and services. c. government welfare programs for needy people. d. how the allocation of resources affects economic well-being.

d