Test 2 - Practice Problems
7-3. With respect to welfare economics, the equilibrium price of a product is considered to be the best price because it maximizes total revenue to firms and total utility to buyers.
False
7-33. If you pay a price exactly equal to your willingness to pay, then your consumer surplus is negative.
False
7-40. The area below a demand curve and above the price measures producer surplus.
False
7-65. Cost refers to a seller's producer surplus.
False
7-66. A supply curve can be used to measure producer surplus because it reflects the actions of sellers.
False
7-67. A seller would be willing to sell a product ONLY IF the price received is less than the cost of production.
False
7-77. If demand decreases, the price of a product, as well as producer surplus, increases.
False
7-78. The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate increases, and producer surplus increases.
False
7-79. Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will decrease, and producer surplus in the industry will decrease.
False
7-80. Producer surplus equals Value to buyers - Amount paid by buyers.
False
7-82. Producer surplus is the area under the supply curve to the left of the amount sold.
False
7-89. The marginal seller is the seller who cannot compete with the other sellers in the market.
False
7-9. Willingness to pay measures the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
False
7-90. According to the graph shown, when the price is P2, producer surplus is A.
False
7-91. According to the graph shown, at the price of P1, producer surplus is A.
False
7-92. According to the graph shown, when the price falls from P2 to P1, producer surplus decreases by an amount equal to A.
False
7-95. According to the graph shown, area A represents producer surplus to new producers entering the market as the result of price rising from P1 to P2.
False
7-99. Denea produces cookies. Her production cost is $3 per dozen. She sells the cookies for $8 per dozen. Her producer surplus is $3 per dozen.
False
Ch. 5 - 35. Demand is elastic if elasticity is less than 1.
False
Ch. 5 - 37. Demand is unit elastic if elasticity is less than 1.
False
Ch. 5 - 48. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the demand curve will be steeper.
False
Ch. 5 - 7. Demand is said to be elastic if the price of the good responds substantially to changes in demand.
False
Ch. 5 - 90. For a horizontal demand curve, slope is undefined and elasticity equals 0.
False
Out-of-pocket expenses plus the value of the seller's own resources used in production are considered to be the seller's total revenue.
False
Ch. 5 - 17. Demand for a good would tend to be more inelastic the fewer the available substitutes.
true
Ch. 5 - 5. The price elasticity of demand measures a buyer's responsiveness to a change in the price of a good.
true
7-73. According to the graph shown, B represents consumer surplus when the price is P1.
True
7-74. According to the graph shown, C represents producer surplus when the price is P1.
True
7-75. According to the graph shown, B + C represents total surplus in the market when the price is P1.
True
7-76. Suppose the demand for nachos increases. Producer surplus in the market for nachos will increase.
True
7-93. According to the graph shown, area B represents producer surplus to new producers entering the market as the result of price rising from P1 to P2.
True
7-98. Producer surplus measures the well-being of sellers.
True
Ch. 5 - 100. The difference between slope and elasticity is that slope measures actual changes and elasticity measures percentage changes.
True
Ch. 5 - 36. Demand is inelastic if elasticity is less than 1.
True
Ch. 5 - 47. Demand is said to be unit elastic if quantity demanded changes by the same percent as the price.
True
Ch. 5 - 60. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, Alice's demand for banana splits is perfectly inelastic.
True
7-21. Janine would be willing to pay $50 to see Les Misérables, but buys a ticket for only $30. Janine values the performance at $20.
False
7-25. Amy buys a new dog for $150. She receives consumer surplus of $100 on her purchase. Her willingness to pay is $50.
False
7-104. At Nick's Bakery, the cost to make his homemade chocolate cake is $3 per cake. He sells three and receives a total of $21 worth of producer surplus. Nick must be selling his cakes for $2 each.
False
7-111. We can say that the allocation of resources is efficient if producer surplus is maximized. False
False
7-114. Total surplus in a market is the total costs to sellers of providing the goods less the total value to buyers of the goods.
False
7-116. Total surplus in a market is represented by the total area under the demand curve and above the price.
False
7-12. A consumer's willingness to pay measures the cost of a good to the buyer.
False
7-124. Total surplus in a market equals Value to buyers - Amount paid by buyers.
False
7-165. When markets fail, public policy can do nothing to improve the situation.
False
7-19. Shannon buys a new CD player for her car for $135. She receives consumer surplus of $25 on her purchase. Her willingness to pay is $25.
False
6100. According to the graph, the amount of the tax imposed in this market is $1.00.
False
6108. If buyers are required to pay a $0.10 tax per bag on Hershey's kisses, the demand for kisses will shift up by $0.10 per bag.
False
6109. A tax on the buyers of popcorn increases the size of the popcorn market.
False
6122. According to the graph shown, the equilibrium price in the market before the tax is imposed is $1.00.
False
6123. According to the graph shown, the equilibrium price in the market after the tax is imposed is $1.00.
False
6124. According to the graph, the price buyers will pay after the tax is imposed is $1.00
False
6125. According to the graph, the price sellers receive after the tax is imposed is $1.00.
False
6126. According to the graph, the amount of the tax imposed in this market is $1.00.
False
6149. In the end, tax incidence depends on the legislated burden.
False
6167. If a tax is imposed on a market with elastic demand and inelastic supply, buyers will bear most of the burden of the tax.
False
6172. Suppose that a tax is placed on DVDs. If the seller ends up paying the majority of the tax we know that the demand curve is more inelastic than the supply curve.
False
6173. Suppose that a tax is placed on books. If the buyer pays the majority of the tax we know that the supply curve is more inelastic than the demand curve.
False
692. The term tax incidence refers to the Boston Tea Party.
False
693. The initial effect of a tax on the buyers of a good is on the supply of that good.
False
697. According to the graph shown, the equilibrium price in the market before the tax is imposed is $8.00.
False
699. According to the graph, the price sellers receive after the tax is imposed is $8.00.
False
7-1. Welfare economics is the study of the well-being of less fortunate people.
False
7-100. Donald produces nails at a cost of $200 per ton. If he sells the nails for $500 per ton, his producer surplus is $200 per ton.
False
7-102. If Roberta sells a shirt for $30, and her producer surplus from the sale is $21, her cost must have been $51.
False
7-31. 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 zero.
True
7-32. Suppose there is an early freeze in California that ruins the lemon crop. Consumer surplus in the market for lemons decreases.
True
7-35. A demand curve measures a buyer's willingness to pay.
True
7-39. Consumer surplus equals the Value to buyers - Amount paid by buyers.
True
7-44. If the price of a good increases, consumer surplus decreases.
True
7-45. When technology improves in the ice cream industry, consumer surplus will increase.
True
7-62. In most markets, consumer surplus reflects economic well-being.
True
7-64. Cost is a measure of the seller's willingness to sell.
True
6112. For the most part, buyers and sellers share the burden of the tax.
True
6114. When a tax is placed on the buyers of milk, the size of the milk market is reduced.
True
6118. If a tax is levied on the seller of a product the demand curve will not change.
True
6119. A tax placed on the seller of a product will raise equilibrium price and lower equilibrium quantity.
True
6120. A tax placed on the seller of a good raises the price buyers pay and lowers the price sellers receive.
True
6121. When a tax is placed on the sellers of a product the size of the market is reduced.
True
6131. A tax on the sellers of cell phones will reduce the size of the cell phone market.
True
6135. A tax placed on the sellers of blueberries increases costs, lowers profit and shifts supply to the left (upward).
True
6165. If a tax is imposed on a market with inelastic demand and elastic supply, buyers will bear most of the burden of the tax.
True
6166. Buyers of a product will pay the majority of a tax placed on a product when supply is more elastic than demand.
True
6169. For the most part, a tax burden falls most heavily on the side of the market that is more inelastic.
True
6171. The burden of a tax placed on a product depends on the supply and demand of that product.
True
6177. When analyzing the economic effects of government policies, supply and demand are useful tools of analysis.
True
691. For the most part, all governments, federal, state, and local, rely on taxes to raise revenue for public purposes.
True
694. If a tax is imposed on the buyer of a product the demand curve would shift downward by the amount of the tax.
True
698. According to the graph, the price buyers will pay after the tax is imposed is . $8.00.
True
7-10. Consumer surplus is a buyer's willingness to pay minus the price.
True
7-112. total surplus = value to sellers - costs of sellers is NOT correct.
True
7-115. In a market, total surplus is equal to producer surplus plus consumer surplus.
True
7-118. At the equilibrium price, the good will be purchased by those buyers who value the good more than price.
True
7-125. Total surplus in a market equals Consumer surplus + Producer surplus.
True
7-136. An allocation of resources is said to be inefficient if a good is not being produced by the sellers with the lowest cost.
True
7-14. 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 $6.00.
True
7-145. When economists say that markets are efficient, they are assuming that markets are perfectly competitive.
True
7-147. Efficiency occurs when total surplus is maximized.
True
7-149. Inefficiency exists in any economy when a good is not being consumed by buyers who value it most highly.
True
7-15. Belva is willing to pay $65.00 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48.00. Belva's consumer surplus is $17.
True
7-153. The "invisible hand" refers to the marketplace guiding the self-interests of market participants into promoting general economic well-being.
True
7-161. Externalities are side effects passed on to a party other than the buyers and sellers in the market.
True
7-172. If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will increase consumer surplus.
True
Ch. 5 - 1. In general, elasticity is the friction that develops between buyers and sellers in a market.
false
Ch. 5 - 10. When quantity demanded responds only slightly to changes in price, demand is said to be unit elastic.
false
Ch. 5 - 18. Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because it must be eaten quickly.
false
Ch. 5 - 22. A good will have a more inelastic demand the greater the availability of close substitutes.
false
Ch. 5 - 29. The greater the price elasticity of demand the more likely the product is a necessity.
false
Ch. 5 - 32. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a 4.0 percent decrease in the quantity demanded.
false
Ch. 5 - 33. If a 15 percent increase in price causes a 30 percent decrease in quantity demanded, this product might have no close substitute.
false
