Chapter 5

A price ceiling will cause A. producer surplus to fall. B. total economic surplus to rise. C. quantity supplied to exceed quantity demanded. D. demand to increase.

a

Price ceilings above the equilibrium price result in A. market prices above the equilibrium price. B. a market unable to reach Pareto Efficiency C. a market that is able to reach Pareto Efficiency D. wealth redistribution to benefit the poor

a

Economists claim that markets A. provide stable employment for citizens. B. guarantee a fair income distribution. C. produce goods and services as efficiently as possible. D. provide safe neighborhoods.

c

As discussed in the textbook, rent controls in Cairo are an example of A. a price floor. B. an effective way of providing the poor with access to housing. C. market efficiency. D. a price ceiling.

d

Consumer surplus measures A. the amount by which quantity supplied exceeds quantity demanded. B. the amount by which quantity demanded exceeds quantity supplied. C. the cumulative difference between real and nominal prices. D. the cumulative difference between price and maximum willingness to pay.

d

Mustafa's reservation price for his economics textbook is $100. The week before the semester began, Mustafa found a copy of the required text online for $75. Mustafa's consumer surplus is A. $125 B. $100 C. $75 D. $25

d

Pareto efficiency is a situation in which A. no one is made better off. B. trades remain that would make some better off without harming others. C. trades have benefited some and harmed others. D. any further trades will harm someone.

d

Suppose the market for coffee is in equilibrium at a price of $5 per kg. This means A. all producers who want to sell coffee earn a profit. B. all remaining producers require less than $5 to produce coffee. C. all consumers who want to buy coffee are satisfied. D. all remaining consumers value a kg of coffee at less than $5.

d

When a minimum price is set by law or regulation A. a shortage develops. B. it is called a price ceiling. C. the legal price is the maximum price allowable. D. it is termed a price floor.

d

Suppose that a firm is located along a river. The firm uses water from the river to cool its machinery and returns the water to the river several degrees warmer, which has led to a decline in the fish population downstream of the firm. 36. The damage to the downstream fish is a(n) A. relevant cost of production. B. relevant cost of production only if the firm is charged a fine for the damage done. C. relevant cost of production only if there are commercial fishing activities downstream. D. implicit cost of production which the firm will take into account in determining profit maximizing output.

a

Suppose the market for honey is in equilibrium at $3 per kg. This means A. all remaining producers will require more than $3 to produce additional honey. B. all remaining consumers value honey at more than $3. C. the benefit of the last kg of honey exceeds $3. D. the cost of the last kg of honey is less than $3.

a

Binding price floors cause A. total economic surplus to increase. B. excess supply. C. too much consumption. D. too little production.

b

Consumer surplus is the value of A. consumer spending on frivolous goods. B. the cumulative difference between what consumers are willing to pay and the price they actually pay. C. the difference between the suggested retail price and the everyday low price. D. the difference between the list price and the price the consumer can negotiate.

b

Excess demand in the market is evidence of A. Pareto efficiency B. the opportunity for surplus-enhancing trades C. an economic pie that is too small D. equilibrium

b

If the demand curve fails to capture all of the benefits of consumption, then the A. equilibrium price is efficient but the quantity will be too large. B. the equilibrium price is inefficiently low. C. government needs to impose regulations that require more consumption. D. the equilibrium price is inefficiently high.

b

Price ceilings that are below the equilibrium price result in A. increased total economic surplus. B. shortages. C. surpluses. D. the same amount of total economic surplus with a reallocation from producers to consumers.

b

A market equilibrium is only efficient when A. buyers and sellers each earn equal surplus from the transaction. B. consumer surplus and producer surplus are both zero. C. All relevant costs, including those imposed on others, are accounted for. D. Income is distributed equitably.

c

When price is $2 per scoop, each student's consumer surplus is determined by A. the difference between maximum willingness to pay of $4.50 and $2, or $2.50. B. the area of the triangle of dimension ($4.50 - $2.00) high and 6 long = $7.50. C. the difference between each student's maximum price of $4.50 and $2 times the number of scoops, or $2.50 times 6 = $15. D. The area of the triangle of dimension $4.50 high and 8 long = $18.

b

Which of the following is NOT guaranteed by the efficiency of the market equilibrium? A. Price represents the value of an extra unit of consumption. B. Rich and poor will have adequate access to the good. C. Price represents the cost of an extra unit of production. D. All mutually beneficial trades will have been made.

b

Which of the following statements best characterizes the inefficiency caused by a price floor? A. Consumers are encouraged to consume too much. B. Trades that benefit both the buyer and the seller are available at prices less than the price floor. C. Producers are encouraged to produce too little. D. The enforcement of the price floor is extremely costly.

b

Which of the following statements illustrate the concept of efficiency? A. The production of the good generates very little pollution. B. At equilibrium, all mutually beneficial transactions have taken place. C. The production of the good generates very few by-products. D. The consumption of the good produces very little waste.

b

According to the demand curve shown above, each individual student has ______ consumer surplus when price is ___________. A. less; lower B. more; higher C. more; lower D. the same; higher

c

Imane decides to try to buy a ticket from a scalper (a person who has purchased extra tickets at the box office with the intent to resell those tickets). If Imane finds someone who is willing to sell her a ticket for $70, she should A. not purchase it because it is overpriced by $10. B. not purchase it because the cost to the scalper was only $60, and it is unfair of the scalper to take advantage of the ticket shortage. C. purchase it, leading to an increase in surplus. D. purchase it even though it is not surplus enhancing.

c

Imane has been waiting for the show "Madrasat Almoshaghibeen" to come to town. When it finally does come, ticket prices are $60. Imane's reservation price is $75. But when Imane tries to buy a ticket, they are sold out. 20. The fact that Imane cannot buy a ticket to "Madrasat Almoshaghibeen" is evidence of A. Pareto efficiency in this market. B. A price ceiling above the equilibrium price. C. A situation that is not Pareto efficient. D. The benefits of allocating resources on the first-come, first-served basis.

c

Market equilibrium is considered efficient because A. prices are low. B. the price consumers pay equals the profit producers receive. C. no more trades remain that benefit some without harming others. D. it assures that both the buyer and seller earn equal surplus.

c

Suppose that a firm is located along a river. The firm uses water from the river to cool its machinery and returns the water to the river several degrees warmer, which has led to a decline in the fish population downstream of the firm. If the firm does not have to pay for the damage to the downstream fish, the market equilibrium price will be ________ and the market equilibrium quantity will be _____. A. inefficiently high; inefficiently low B. inefficiently high; efficient C. inefficiently low; inefficiently high D. efficient; inefficiently low

c

Suppose the government sets the price for hammour and the market for hammour is always experiencing a surplus. One can infer that the A. government has established a price ceiling for hammour. B. quantity of hammour demanded exceeds the quantity of hammour supplied. C. government has established a price floor for hammour. D. supply of hammour exceeds the demand for hammour.

c

The argument that efficiency is an appropriate goal assumes that the gains from enhancing efficiency A. will be equally distributed in the population. B. will benefit the poor by more than the wealthy. C. could potentially benefit everyone. D. reduce income disparities in the population.

c

The fact that Imane cannot buy a ticket to "Madrasat Almoshaghibeen" is evidence of A. Pareto efficiency in this market. B. A price ceiling above the equilibrium price. C. A situation that is not Pareto efficient. D. The benefits of allocating resources on the first-come, first-served basis.

c

Which of the following statements expresses the justification for making efficiency the first goal of economic interaction? A. Efficiency gives the poor an incentive to improve their economic status. B. Since the consensus on what is a fair distribution of goods is impossible, efficiency is the next best goal. C. People are not really concerned about the problems of the poor. D. Efficiency maximizes total economic surplus and thereby allows other goals to be more fully achieved.

d