chapter 7

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

$64

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?

$10

Steak and chicken are substitutes. A sharp reduction in the supply of steak would

decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken.

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

decreases, and producer surplus decreases.

A supply curve can be used to measure producer surplus because it reflects

sellers' costs.

Producer surplus is

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

In order to conclude that markets are efficient, we assume that they are perfectly competitive.

true

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

$3.50 each.

A seller's opportunity cost measures the

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

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero.

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases

The distinction between efficiency and equality can be described as follows:

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

Which of the following events would increase producer surplus?

Sellers' costs stay the same and the price of the good increases.

Which of the following is true when the price of a good or service rises?

Some buyers exit the market.

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound,

both Janine and Henry experience an increase in consumer surplus.

A drought in California destroys many red grapes causing the prices of both red grapes and red wine to rise . As a result, the consumer surplus in the market for red grapes

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

All else equal, a decrease in demand will cause an increase in producer surplus.

false

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 $100.

false

Consumer surplus can be measured as the area between the demand curve and the supply curve.

false

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

false

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

may increase, decrease, or remain unchanged.

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it

minimizes the expenditure of buyers.

Cost is a measure of the

seller's willingness to sell.

Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25). If there are five buyers in the market, then

the marginal buyer's willingness to pay for the 100th unit of the good is $25.

A simultaneous increase in both the demand for tablets and the supply of tablets would imply that

the value of tablets to consumers has increased, and the cost of producing tablets has decreased.

We can say that the allocation of resources is efficient if

total surplus is maximized.

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

true

For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

true

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

true

Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200.

true