Chapter 7

Consumer surplus in a market can be represented by the Select one: 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.

All else equal, what happens to consumer surplus if the price of a good decreases? Select one: 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 increases.

Inefficiency exists in an economy when a good is Select one: 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.

Externalities are Select one: 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.

A seller's opportunity cost measures the Select one: 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.

Producer surplus equals Select one: 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. Amount received by sellers - Costs of sellers.

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

b. It decreases.

The "invisible hand" is Select one: 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 concept developed by Adam Smith to describe the virtues of free markets.

Efficiency in a market is achieved when Select one: 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.

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 Select one: a. $0.50. b. $0.60. c. $0.70. d. $1.00.

c. $0.70.

Producer surplus is the area Select one: 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. below the price and above the supply curve.

A consumer's willingness to pay directly measures Select one: 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 a good.

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

c. inefficient.

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

c. market failure.

Producer surplus directly measures Select one: 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. the well-being of sellers.

Another way to think of the marginal seller is the seller who Select one: 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. would leave the market first if the price were any lower.

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? Select one: a. $50. b. $150. c. $200. d. $350.

d. $350.

A seller's willingness to sell is Select one: 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. All of the above are correct.

Total surplus Select one: 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. All of the above are correct.

A demand curve reflects each of the following except the Select one: 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. ability of buyers to obtain the quantity they desire

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

d. allow them to do

Welfare economics is the study of Select one: 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. how the allocation of resources affects economic well-being.

Consumer surplus Select one: 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. measures the benefit buyers receive from participating in a market.

Market failure is the inability of Select one: 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.

In a market, the marginal buyer is the buyer Select one: 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. who would be the first to leave the market if the price were any higher.