Chapter 7: True/False

If your willingness to pay for a hamburger is 3.00 dollars and the price is 2.00 dollars your consumer surplus is 5.00 dollars total. (T/F)

False; 3.00-2.00 = 1.00

Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost. (T/F)

False; Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays

Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price. (T/F)

False; Free markets allocate output to buyers who have a willingness to pay that is about the price

Producer surplus is a measure of the unsold inventories of suppliers in a market. (T/F)

False; It is a measure of the benefits of market participation to the sellers in a market

Producing more of a product always adds to total surplus. (T/F)

False; Producing above the equilibrium quantity reduces total surplus because units are produced for which cost exceeds the value to buyers

Total surplus is the cost to sellers minus the value to buyers. (T/F)

False; Total surplus is the vale to buyers mins the cost to sellers

Consumer surplus is a good measure of buyers' benefits if buyers are rational. (T/F)

True

Cost to the seller includes the opportunity cost of the seller's time. (T/F)

True

Equilibrium in a competisse market maximizes total surplus. (T/F)

True

Externalities are side effects, such as pollution, that are taken into account by the buyers and sellers in a market. (T/F)

True

If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases. (T/F)

True

Producer surplus is the area above the supply curve and below the price. (T/F)

True

The hight of the supply curve is the marginal seller's cost. (T/F)

True

The major advantage of allowing free markets to allocate resources it that the outcome of the allocation is efficient.

True

The two main types of market failure are market power and externalities. (T/F)

True