ECON FINAL EXAM PART IV

26. Producer surplus directly measures a. the well-being of sellers. b. production costs. c. excess demand. d. unsold inventories.

a. the well-being of sellers

2. The maximum price that a buyer will pay for a good is called a. consumer surplus. b. willingness to pay. c. equilibrium. d. efficiency.

b. willingness to pay

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

c. market failure

Table 7-14 Seller Cost LeBron $700 Kobe $600 Kevin $450 Steve $400 24. Refer to Table 7-14. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You take bids from the sellers. Who offers the winning bid, and what does he offer to charge for the photography session? a. Steve; more than $400 but less than $450 b. Steve; $399 c. LeBron; more than $700 d. LeBron; more than $600 but less than $700

a. Steve; more than $400 but less than $450

7. 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. area below the demand curve and above the price

20. Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers' output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

a. benefits to sellers of participation in a market

17. When the supply of a good decreases and the demand for the good remains unchanged, consumer surplus a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.

a. decreases

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

a. it increases

44. The French expression used by free-market advocates, which literally translates as "allow them to do," is a. laissez-faire. b. je ne sais pas. c. si'l vous plait. d. tête-à-tête.

a. laissez-faire

42. 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. not being consumed by buyers who value it most highly

53. Which of the following events would increase producer surplus? a. Sellers' costs stay the same and the price of the good increases. b. Sellers' costs increase and the price of the good stays the same. c. Sellers' costs increase and the price of the good decreases. d. All of the above are correct.

a. sellers' cost stay the same and the price of the good increases

49. 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. side effects passed on to a party other than the buyers and sellers in the market

5. Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

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

43. The "invisible hand" refers to a. the marketplace guiding the self-interests of market participants into promoting general economic well-being. b. the fact that social planners sometimes have to intervene, even in perfectly competitive markets, to make those markets more efficient. c. the equality that results from market forces allocating the goods produced in the market. d. the automatic maximization of consumer surplus in free markets.

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

18. 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. value of everything she must give up to produce a good

12. You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? a. $0 b. $10 c. $40 d. $50

b. $10

23. Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $15, the cost of mowing the second lawn is $25, and the cost of mowing the third lawn is $40. His producer surplus on the first three lawns of the day is $100. If Ronnie charges all customers the same price for lawn mowing, that price is a. $20. b. $60. c. $80. d. $180.

b. $60

22. Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is a. $40. b. $64. c. $12. d. $56.

b. $64

52. Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Which of the following market outcomes is efficient? a. Firm A produces a monitor that Cassie buys. David does not purchase a monitor. b. Firm A produces a monitor that David buys. c. Firm B produces a monitor that Cassie buys. David does not purchase a monitor. d. Firm B produces a monitor that David buys.

b. Firm A produces a monitor that David buys

Table 7-1 Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 9. Refer to Table 7-1. If the market price is $105, a. Calvin's consumer surplus is $45 and total consumer surplus is $85. b. Sam's consumer surplus is $30 and total consumer surplus is $90. c. Andrew's consumer surplus is $15 and total consumer surplus is $67.50. d. Lori's consumer surplus is -$2 and total consumer surplus is $100.

b. Sam's consumer surplus is $30 and total consumer surplus is $90

6. On a graph, the area below a demand curve and above the price measures a. producer surplus. b. consumer surplus. c. deadweight loss. d. willingness to pay.

b. consumer surplus

30. Total surplus is a. equal to consumer surplus minus producer surplus. b. equal to the total value to buyers minus the total cost to sellers. c. equal to consumers' willingness to pay plus producers' cost. d. greater than the sum of consumer surplus plus producer surplus.

b. equal to the total value to buyers minus the total cost to sellers

55. Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will a. increase consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles. b. increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles. c. decrease consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles. d. decrease consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles.

b. increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.

19. A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. seller's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

b. seller's cost of production

32. 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. the sum of producer surplus and consumer surplus is maximized

27. The marginal seller is the seller who a. cannot compete with the other sellers in the market. b. would leave the market first if the price were any lower. c. can produce at the lowest cost. d. has the largest producer surplus.

b. would leave the market first if the price were any lower

Table 7-3 The only four consumers in a market have the following willingness to pay for a good: Buyer Willingness to Pay Carlos $15 Quilana $25 Wilbur $35 Ming-la $45 10. Refer to Table 7-3. If the price is $20, then consumer surplus in the market is a. $20, and Wilbur and Ming-la purchase the good. b. $45, and Carlos and Quilana purchase the good. c. $45, and Quilana, Wilbur, and Ming-la purchase the good. d. $55, and Carlos, Wilbur, and Ming-la purchase the good.

c. $45, and Quilana, Wilbur, and Ming-la purchase the good

Table 7-1 Buyer Willingness To Pay Calvin $150.00 Sam $135.00 Andrew $120.00 Lori $100.00 8. Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase the product? a. Calvin b. Calvin and Sam c. Calvin, Sam, and Andrew d. Calvin, Sam, Andrew, and Lori

c. Calvin, Sam, and Andrew

33. If an allocation of resources is efficient, then a. consumer surplus is maximized. b. producer surplus is maximized. c. all potential gains from trade among buyers are sellers are being realized. d. the allocation achieves equality as well.

c. all potential gains from trade among buyers are sellers are being realized

3. 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. how much a buyer values the good

1. The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.

c. maximizes the combined welfare of buyers and sellers

21. Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.

c. the amount a seller is paid minus the cost of production

29. Which of the following will cause an increase in producer surplus? a. the imposition of a binding price ceiling in the market b. buyers expect the price of the good to be lower next month c. the price of a substitute increases d. income increases and buyers consider the good to be inferior

c. the price of a substitute increases

14. Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

d. $131,000

54. The distinction between efficiency and equality can be described as follows: a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society.

Table 7-14 Seller Cost LeBron $700 Kobe $600 Kevin $450 Steve $400 25. Refer to Table 7-14. You and your best friend want to hire a professional photographer to take pictures of your two families. The table shows the costs of the four potential sellers in the local photography market. You and your friend agree to offer $500 for each session. Who accepts the offer, and what is the total producer surplus in the market? a. LeBron and Kobe; $500 b. Kevin and Steve; $500 c. LeBron and Kobe; $300 d. Kevin and Steve; $150

d. Kevin and Steve; $150

48. Inefficiency can be caused in a market by the presence of a. market power. b. externalities. c. imperfectly competitive markets. d. All of the above are correct.

d. all of the above are correct

Table 7-3 The only four consumers in a market have the following willingness to pay for a good: Buyer Willingness to Pay Carlos $15 Quilana $25 Wilbur $35 Ming-la $45 11. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22? a. Quilana b. Wilbur c. Ming-la d. All three buyers experience the same loss of consumer surplus.

d. all three buyers experience the same loss of consume surplus

45. 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. allow them to do it

31. Total surplus is represented by the area a. under the demand curve and above the price. b. above the supply curve and up to the price. c. under the supply curve and up to the price. d. between the demand and supply curves up to the point of equilibrium.

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

4. When a buyer's willingness to pay for a good is equal to the price of the good, the a. buyer's consumer surplus for that good is maximized. b. buyer will buy as much of the good as the buyer's budget allows. c. price of the good exceeds the value that the buyer places on the good. d. buyer is indifferent between buying the good and not buying it.

d. buyer is indifferent between buying the good and not buying it

13. A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases.

d. decreases, and the consumer surplus in the market for red wine decreases

46. According to many economists, government restrictions on ticket scalping do all of the following except a. inconvenience the public. b. reduce the audience for cultural and sports events. c. waste police officers' time. d. keep the cost of tickets to all consumers low.

d. keep the cost of tickets to all consumers low

47. Total surplus in a market will increase when the government a. imposes a binding price floor or a binding price ceiling on that market. b. imposes a tax on that market. c. Both a and b are correct. d. Neither a nor b is correct.

d. neither a nor b is correct

50. 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. some unregulated markets to allocate resources efficiently