Microeconomics Chapter 7 & 8
Sally sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Sally is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Sally is rational in deciding how many knives to sharpen. Her producer surplus is...
$1.00
Marjorie is willing to pay $68 for a pair of shoes for a formal dance. She finds a pair at her favorite outlet shoe store for $48. Marjorie's consumer surplus is...
$20
Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $10; the cost of mowing the second lawn is $12; and the cost of mowing the third lawn is $15. His producer surplus on the first three lawns of the day is $53. If Ronnie charges all customers the same price for lawn mowing, that price is...
$30
Refer to Figure 7-9. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus is equal to...
$570
Refer to Figure 7-9. At the equilibrium price, producer surplus is...
$640
Refer to Figure 8-7. The tax causes consumer surplus to decrease by the area...
B + C
Which of the following statements is not correct about a market in equilibrium?
Consumer surplus will be equal to producer surplus.
Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum legal price for widgets to $4,
any possible increase in consumer surplus would be smaller than the loss of producer surplus.
Total surplus in a market is represented by the total area
between the demand and supply curves up to the point of equilibrium.
Refer to Figure 7-5. If the price of the good is $14, then producer surplus is...
c. $25
To fully understand how taxes affect economic well-being, we must...
compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
Refer to Figure 8-7. If the government imposes a price ceiling of $8 on this market. The resulting deadweight loss would be
greater than the area C + F
A government subsidy would improve upon the market efficiency because such a policy makes both consumers and producers better off.
F
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
It decreases.
If an allocation of resources is efficient, then
all potential gains from trade among buyers are sellers are being realized
On a graph, consumer surplus is the area...
below the demand curve and above price
Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market...
may increase, decrease, or remain unchanged
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is...
$600
Refer to Figure 7-5. If the price of the good is $8.50, then producer surplus is...
$8.00
Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the demand for goods to the sellers who can produce them at least cost.
T
In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.
T
Normally, both buyers and sellers of a good become worse off when the good is taxed.
T
Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.
T
The area below the price and above the supply curve measures the producer surplus in a market.
T
The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.
T
The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.
T
When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.
T
Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 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 Noah is rational in deciding how many cans to buy. His consumer surplus is...
$0.85
Refer to Figure 7-9. At the equilibrium price, total surplus is...
$1,120
Refer to Figure 7-9. At the equilibrium price, consumer surplus is...
$480
Refer to Figure 8-7. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area...
C + F
Refer to Figure 8-7. The tax causes producer surplus to decrease by the area...
D + F
When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax
F
Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendras's willingness to pay was $95, and Kristen's willingness to pay was $80. Which of the following statements is correct?
For the three individuals together, consumer surplus amounts to $35.
Refer to Figure 8-7. The government collects tax revenue that is represented by the area...
L
In which of the following circumstances would a buyer be indifferent about buying a good?
a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer's willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good.
Total surplus with a tax is equal to...
consumer surplus plus producer surplus plus tax revenue.
For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of...
government's benefit from the tax.
A consumer's willingness to pay directly measures...
how much a buyer values a good.
A deadweight loss is a consequence of a tax on a good because the tax...
induces buyers to consume less, and sellers to produce less, of the good.
Deadweight loss measures the...
loss in a market to buyers and sellers that is not offset by an increase in government revenue.
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
Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus...
might increase or decrease.
Inefficiency exists in an economy when a good is...
not being produced by the lowest-cost producers
Consumer surplus is...
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
Producer surplus measures...
the benefits to sellers of participating in a market.
We can say that the allocation of resources is efficient if...
total surplus is maximized.
