Chapt 7 Quiz

T/F: Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

F

T/F: Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.

F

T/F: Producing a soccer ball costs Jake $5. He sells it to Darby for $35. Darby values the soccer ball at $50. For this transaction, the total surplus in the market is $40.

F

T/F: The lower the price, the lower the consumer surplus, all else equal.

F

T/F: Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window-cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $200.

T

T/F: Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.

T

T/F: Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 15 + (1/3) QS . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.

T

T/F: Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

T

T/F: When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

T

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for a. $3.50 each. b. $0.50 each. c. $5.00 each. d. $2.00 each.

a. $3.50 each.

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

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

Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? a. $4 b. $8 c. $6 d. $2

b. $8

On a graph, consumer surplus is represented by the area a. below the demand curve and above price. b. below the demand curve and to the right of equilibrium price. c. below the price and above the supply curve. d. between the demand and supply curves

b. below the demand curve and above the supply curve

As a result of a decrease in price, a. existing buyers exit the market, increasing consumer surplus. b. new buyers enter the market, increasing consumer surplus. c. existing buyers exit the market, decreasing consumer surplus. d. new buyers enter the market, decreasing consumer surplus.

b. new buyers enter the market, increasing consumer surplus.