ECON 101 - CH 7 Questions

Jeff decides that he would pay as much as $2,000 for a new laptop computer. He buys the computer and realizes a consumer surplus of $300. How much did Jeff pay for his computer?

$1,700.

Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase if her willingness to pay is

$105.

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is

$131,000.

George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is

$6.

Inefficiency can be caused in a market by the presence of

All of the above are correct: market power, externalities, imperfectly competitive markets

A seller's willingness to sell is

All of the above are correct: measured by the seller's cost of production, related to her supply curve just as a buyer's willingness to buy is related to his demand curve, less than the price received if producer surplus is a positive number

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

Consumer surplus may increase, decrease, or remain unchanged.

Which of the following events would increase producer surplus?

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

Welfare economics explains which of the following in the market for televisions?

The market equilibrium price for televisions maximizes the total welfare of television buyers and sellers.

Consumer surplus is the

amount a consumer is willing to pay minus the amount the consumer actually pays.

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

consumer and producer surplus

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good.

On a graph, the area below a demand curve and above the price measures

consumer surplus.

Oil is used to produce gasoline. If the price of oil increases, consumer surplus in the gasoline market

decreases.

Total surplus is

equal to the total value to buyers minus the total cost to sellers.

The decisions of buyers and sellers that affect people who are not participants in the market create

externalities.

The welfare of sellers is measured by

producer surplus.

Consumer surplus is a good measure of economic welfare if policymakers want to

respect the preferences of buyers.

Externalities are

side effects passed on to a party other than the buyers and sellers in the market.

The "invisible hand" refers to

the marketplace guiding the self-interests of market participants into promoting general economic well-being.

A seller's opportunity cost measures the

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

The maximum price that a buyer will pay for a good is called

willingness to pay.

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?

$350.

The "invisible hand" is

a concept developed by Adam Smith to describe the virtues of free markets.

Welfare economics is the study of

how the allocation of resources affects economic well-being.

Consumer surplus

measures the benefit buyers receive from participating in a market.

Producer surplus directly measures

the well-being of sellers.

Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $250. His consumer surplus is

$150.

Donald produces nails at a cost of $350 per ton. If he sells the nails for $500 per ton, his producer surplus is

$150.

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175.

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is

$80.

At the equilibrium price of a good, the good will be purchased by those buyers who

value the good more than price.

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

willingness to pay.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay.

The marginal seller is the seller who

would leave the market first if the price were any lower.

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

On a graph, consumer surplus is represented by the area

below the demand curve and above price.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

increase, and producer surplus in the industry will increase.

If the cost of producing sofas decreases, then consumer surplus in the sofa market will

increase.

Market power and externalities are examples of

market failure.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers.

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

maximizes the combined welfare of buyers and sellers.

Inefficiency exists in a market when a good is

not being consumed by buyers who value it most highly.