Chapter 6 Problems

D

Amanda Mendez goes to a local cafe and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does the café receive when Amanda purchases the sandwich? A. $4 B. $1 C. $6 D. $3

A

Carlos buys six new plants for his garden. If he has purchased according to the rational rule, his consumer surplus on the sixth plant is equal to: A. zero. B. total benefit minus price. C. price minus marginal cost. D. price plus marginal benefit.

Normative, Positive

Select the best choice that completes each sentence. ____ statements say something about how the world ought to be. ____ statements say something that describes how the world currently is. Choices: Normative or Positive

58, A

Alice, Amber, and Andi make and sell pottery. Alice is willing to sell a 5 inch pot for $30, Amber is willing to sell a 5 inch pot for$34, and Andi is willing to sell a 5 inch pot for $58. If each of the ladies is able to sell one 5 inch pot for$60, what is their combined producer surplus? combined producer surplus: $____ If the price of a 5 inch pot is $40, which of the ladies will sell their pots? A. Alice and Amber B. Alice only C. Andi only D. Alice, Amber, and Andi

B

Amanda Mendez goes to a local café and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich? A. $10 B. $6 C. $4 D. $3

A

Assume Aaron and José each own a small ranch, and each produces milk and cheese. One of them is better than the other at producing both milk and cheese (but we do not know who). Which of the statements cannot be true regarding absolute or comparative advantage? A. Aaron could have a comparative advantage in producing both milk and cheese. B. José could have a comparative advantage in producing cheese. C. José could have an absolute advantage in producing cheese. D. José could have an absolute advantage in producing both milk and cheese. E. Aaron could have an absolute advantage in producing milk.

B

Barlow and Rusia own a nail salon. A manicure takes Barlow 60 minutes to complete and takes Rusia 45 minutes to complete. Completing a pedicure takes Barlow 45 minutes and takes Rusia 30 minutes. Who has a comparative advantage in pedicures? A. Barlow because he has a lower opportunity cost. B. Rusia because she has a lower opportunity cost. C. Rusia because she is faster. D. Barlow because he is faster.

C

Consumer surplus for an individual buyer is equal to the: A. consumer's willingness to pay for the good, or the marginal benefit from the good, plus the marginal cost of producing the good. B. price of the good plus the marginal cost of producing the good. C. consumer's willingness to pay for the good, or the marginal benefit from the good, minus the price paid for the good. D. marginal cost of the good minus the consumer's willingness to pay for the good or the marginal benefit from the good.

C

Consumer surplus is represented by the area _____ the demand curve and _____ the price that the consumer pays. A. above; below B. above; above C. below; above D. below; below

C

Daniel is a baker who has decided to create his own brand of chain restaurants, Short and Sweet. He negotiates with three suppliers for weeks and ultimately signs contracts with these suppliers. Francis, who owns a new sugar plantation, agrees to sell Daniel freshly refined sugar on the condition that Daniel helps him advertise his brand of sugar. Diana runs an orchard and provides Daniel with fruit. She enters into the partnership knowing that she can dramatically increase her profits if she can sell fruit to Daniel. Lastly, Ryan, who owns a mill, decides to purchase a new piece of machinery so that he can sell Daniel flour at a lower price than his competitor. The end result of Daniel's interactions with his suppliers is that folks in his neighborhood have a chance to buy delicious baked goods at reasonable prices. Daniel's situation with his suppliers is an example of A. a command economy. B. market failure. C. the invisible hand. D. a recession.

B, B, B, B

Determine if the items represent an example of positive economics or normative economics. The richest 1% of Americans should pay more taxes than the rest of the 99%. A. positive economics B. normative economics A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient. A. normative economics B. positive economics As minimum wage increases, the prices of all goods and services also tends to increase. A. normative economics B. positive economics Social welfare spending in Sweden occupies too large a portion of the national budget. A. positive economics B. normative economics

A

Efficient allocation of output requires that: A. each unit of output will go to the person who will get the highest marginal benefit from it. B. consumers will each pay a price equal to the marginal benefit received from the good. C. each unit of output will be produced at minimum fixed cost. D. output will be distributed evenly across consumers and producers.

B

Efficient production occurs when: A. the marginal cost curve is downward sloping. B. a given level of output is produced at the lowest possible cost. C. output is minimized and cost is falling. D. a given level of cost is able to produce a higher output level than before.

A

For suppliers to sell more than the equilibrium quantity, it would mean that: A. it costs suppliers more to produce the good than its value to buyers. B. suppliers gain from trade while buyers are unaffected. C. the gains from trade increase. D. it costs suppliers less to produce the good than its value to buyers.

A

Harrison is willing to buy the last ticket to the Billy Elliot play for $15, while Stefania is willing to pay $25. Harrison is first in line and buys a ticket for $15. He then resells his ticket to Stefania for $20. By reselling the ticket instead of going to the play himself, Harrison caused: A. the sum of the consumer and producer surplus to increase. B. the sum of the consumer and producer surplus to decrease. C. a deadweight loss of $5. D. the consumer surplus to decrease and the producer surplus to increase.

C

How do rice farmers in rural Indonesian villages figure out that they need to produce more rice when the demand for it has risen in other parts of the world? A. A decrease in sales communicates to them that they need to advertise more. B. A decrease in the price of rice gives them a signal that there is insufficient quantity. C. An increase in the price of rice gives them a signal that rice is more valuable. D. An increase in sales communicates to them that inventories are rising.

D

If Ilona wants to live her life based on comparative advantage, then she should A. try to earn as much as possible so that she can buy as much as possible. B. focus her time on the things she can do. C. do those things for herself that she can do most quickly and then trade with others. D. do for herself the things for which she has low opportunity cost and trade with others for things she has a high opportunity cost.

B

If Mary can bake a cake at a lower opportunity cost than Sarah can, then: A. Mary should not bake cakes. B. Mary has a comparative advantage in baking cakes. C. Mary can bake more cakes than Sarah can in a given amount of time. D. Sarah has a comparative advantage in baking cakes.

D

If the market for alpine skis is in competitive equilibrium, and there are no external costs or government interventions, then: A. the sum of consumer surplus and producer surplus is maximized. B. resources are being used efficiently. C. the marginal benefit is equal to the marginal cost. D. All of the other answer choices are correct.

D

If you can complete a task at a lower opportunity cost than anyone else, then you A. have an absolute advantage in that task. B. produce the good using more inputs than anyone else. C. produce the good using fewer inputs than anyone else. D. have a comparative advantage in that task.

D

In a market without prices, where goods are allocated by a central planner, which is likely to happen? A. Inputs, like workers and raw materials, will not go to the companies that can use them to produce the most value. B. Consumers will not receive the amount of any given product that they want. C. Consumers will not receive the products they want, and new products are unlikely to appear. D. All of the above.

D

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. A. neither the buyer nor the seller B. only the seller C. only the buyer D. both the buyer and the seller

B

It is Valentine's Day and Pierre wants to buy his girlfriend Madeline a dozen long‑stemmed roses to show his love for her. He walks into a new neighborhood flower store and reads a plaque next to the roses. Apparently, the roses were grown by farmers in Nairobi, Kenya. What was not mentioned on the plaque was that a shipping company packed them, a pilot flew them on a refrigerated plane, and a trucking company took them to the floral shop. The flower shop owner thought that since the town did not have a flower shop, she could capitalize on the market. Pierre buys a dozen roses from the shop for $60 and presents them to Madeline, much to her delight. What main principle does this story best illustrate? A. consumer surplus B. the invisible hand C. zero-sum exchanges D. producer surplus

D

Juan McDonald is willing to pay $600 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction. A. will; both Juan and Apple B. will; neither Juan nor Apple C. will not; only Juan D. will not; only Apple

D

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte? A. $1 B. $2 C. $6 D. $4

D

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin purchases the latte? A. $6 B. $4 C. $2 D. $1

B

One of the biggest problems with centrally planned economies is that: A. central planners have limited information on the true value of the various ways to utilize scarce resources. B. workers have little incentive to work for the central planner. C. they fail to reach economic efficiency because their policies limit global trade. D. they typically have higher levels of corruption compared with market economies.

A

People gain consumer surplus when they purchase an item: A. at a price below the value of the benefit they receive from the item. B. at an equitable price. C. at a price above marginal revenue but lower than the cost of production. D. with a marginal benefit below the price of the item.

3.00, 1.50

Suppose that Michelle buys a cappuccino from Paul's Cafe and Bakery for $4.75. Michelle was willing to pay up to $7.75 for the cappuccino, and Paul's Cafe and Bakery was willing to accept $3.25 for the cappuccino. Based on this information, answer the following questions. Michelle's consumer surplus: $___ Paul's Cafe and Bakery's producer surplus: $___

D

The "invisible hand" refers to the notion that A. marginal benefit decreases as more is consumed. B. government intervention is necessary to ensure efficiency. C. marginal cost increases as more is produced. D. competitive markets send resources to their highest valued uses. E. no matter what allocation method is used, the resulting production is efficient.

C

The efficient quantity prevails in a market when the market: A. has the lowest average cost. B. costs exceed benefit by the largest margin. C. yields the largest possible economic surplus. D. has benefit equal to cost.

D

The market solves the information problem when allocating resources by: A. aggregating all the relevant information about the output of the good into the demand curve. B. collapsing all the relevant information about inputs of the good into the level of output. C. aggregating all the relevant information about the output of the good into the supply curve. D. collapsing all the relevant information about uses of the good into its price.

C

The price of celery rises, but nothing has changed on the supply side of the market. What does this mean to celery farmers? A. It is a signal that they should reduce celery production because it is too expensive for consumers. B. Celery production should be increased because the number of producers has fallen. C. It is a signal that celery is more valuable to consumers than it was before. D. Celery production should be reduced because the number of producers has risen.

B

The price of macadamia nuts falls. This conveys all of the following signals EXCEPT A. that macadamia nuts are in plentiful supply, so consumers should buy more. B. that the price of almonds is rising. C. that the price change will be understood in every language and helps coordinate the macadamia market. D. that demand for macadamia nuts is low, so producers should produce less.

B

The producer surplus on a unit sold equals: A. 1/2 (price times quantity minus marginal cost). B. price minus marginal cost. C. marginal benefit minus price. D. (price minus marginal cost) multiplied by (1/2 quantity sold).

A

To maximize economic surplus, keep increasing output as long as A. marginal benefits exceed marginal costs. B. total benefits equal total costs. C. total benefits exceed total costs. D. marginal benefits equal marginal costs.

D

Two ways to calculate economic surplus are _____ and _____. A. consumer surplus minus producer surplus; marginal benefit plus marginal cost B. price minus marginal benefit; price minus marginal cost C. marginal benefit minus price; marginal cost minus price D. marginal benefit minus marginal cost; consumer surplus plus producer surplus

B

When producers produce more than the equilibrium quantity: A. the market is operating at an abnormally high level of efficiency. B. resources are wasted because goods are produced at a higher cost than consumers are willing to pay. C. sellers have an incentive to reduce their price. D. buyers have an incentive to offer a higher price.

B

When the economic surplus in a market is less than it would be if the market were efficient, the market is experiencing: A. asymmetry problems. B. deadweight loss. C. an inverse externality. D. a situation in which marginal benefit equals marginal cost.

C

Which describes the fairness-efficiency trade‑off? A. The least efficient economic outcome is the fairest outcome. B. Government intervention can increase efficiency in a market. C. Actions intended to make economic outcomes fairer can cause efficiency to decrease. D. There is always a more equitable outcome that is also more efficient.

B

Which of the following statements about economic surplus is FALSE? A. Economic surplus equals marginal benefit minus marginal cost. B. Economic surplus is the area below the supply curve, above the demand curve, and to the right of quantity sold. C. Economic surplus is the area between the supply curve and the demand curve to the left of quantity sold. D. Economic surplus is consumer surplus plus producer surplus.

C

Which statement about consumer surplus is TRUE? A. Total consumer surplus is equal to the price the consumers paid multiplied by the quantity they purchased. B. Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price. C. Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. D. Consumer surplus is the gross benefit to consumers from the exchange that occurs in a market.

C

Which statement is NOT an important function of an efficient market? A. It allocates consumption of the good to the potential buyers who most value it, as indicated by the fact that they have the highest willingness to pay. B. It allocates sales to the potential sellers who most value the right to sell the good, as indicated by the fact that they have the lowest cost. C. It ensures that every consumer who makes a purchase values the good less than every seller who makes a sale, so that all transactions are mutually beneficial. D. It ensures that every potential buyer who doesn't make a purchase values the good less than every potential seller who doesn't make a sale, so that no mutually beneficial transactions are missed.

A

Which statement is TRUE? A. A competitive market pushes the quantity produced to its efficient level. B. When the efficient quantity is produced, consumer surplus is minimized. C. When the efficient quantity is produced, producer surplus is minimized. D. When supply is greater than demand, producer surplus is less than consumer surplus.

D, B

a. Producer surplus is the difference between A. the maximum price a seller is willing to accept and the market price. B. the market price and the minimum price a buyer is willing to pay. C. the maximum price a buyer is willing to pay and the market price. D. the market price and the minimum price a seller is willing to accept. b. Producer surplus is shown graphically as the area A. under the demand curve and below the market price. B. above the supply curve and below the market price. C. above the supply curve and above the market price. D. under the demand curve and above the market price.