Chapter 7 Economics Quiz

Total Revenue

Area under the price and up to the quantity supplied

Utilitarianism

Idea that the goal of society should be to bring about the greatest happiness for the greatest number of people

If a market system is not perfectly competitive, firms may have

Market Power

6. Which area represents producer surplus when the price is P1? a. BCE b. ACF c. ABED d. DEF

a. BCE

19. An economic outcome is efficient if a. total surplus is maximized b. producer surplus is maximized c. all resources are fully used d. consumer surplus is maximized and producer surplus is minimized

a. total surplus is maximized

10. There are five sellers of a commodity. The following table represents their costs a. $700 b. $750 c. $2,250 d. $3,700

b. $750

16. At the equilibrium, consumer surplus is represented by the area: a. A b. A + B + C c. D + E + F d. A + B + C + D + E + F

b. A + B + C

[Ticket] Scalping increases...

economic efficiency

Welfare economics shows:

- Both buyers and sellers receive benefits from taking part in the market - The equilibrium outcome

Three Insights Concerning Market Outcomes

- Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. - Free markets allocate the demand for goods to the sellers who can produce them at least cost. - Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.

Markets can go wrong by

- Market Power - Externalities - Fairness

Total Surplus

- Value to Buyers - Cost to Sellers - Consumer Surplus + Producer Surplus - Measures the net gain to society from the production and consumption of a good or service

The area under the demand curve up to the quantity demanded is a:

- graphical measure of the total willingness to pay of the buyers. - also the maximum willingness to pay that can be obtained from that quantity

Externalities are created when a market outcome affects...

- individuals other than buyers and sellers in that market - cause welfare in a market to depend on more than just the value to the buyers and cost to the sellers. - when buyers and sellers do not take externalities into account when deciding how much to consume and produce, the equilibrium in the market can be inefficient.

Market Power

- is the ability to influence prices - can cause markets to be inefficient because it keeps price and quantity from the equilibrium of supply and demand.

Willingness to pay

- is the maximum amount that a buyer will pay for a good. - measures how much the buyer values the good.

Consumer surplus

- measures economic welfare of the buyer - is the buyer's willingness to pay for a good minus the amount the buyer actually pays for it. - area below the demand curve and above the price

Producer surplus

- measures economic welfare of the seller - is the amount a seller is paid for a good minus the seller's cost - measures the net benefit to sellers - area below the price and above the supply curve measures the producer surplus.

The area under the supply curve is:

- the cost of the quantity supplied - it is also the lowest cost at which that quantity could be produced

Equity

- the fairness of the distribution of well-being among the various buyers and sellers

An economic outcome is efficient if...

- there is no feasible way to make the total surplus any higher - as long as we produce the equilibrium quantity, it would be impossible the total surplus - society will be worse off if we produce less or more than the equilibrium quantity

Fairness

The free market economic system is efficient but not necessarily fair

15. Total surplus in a market is equal to a. Consumer surplus + Producer surplus b. Value to buyers - Amount paid by buyers c. Amount received by sellers - Costs of sellers d. Producer surplus - Consumer surplus

a. Consumer surplus + Producer surplus

20. The "invisible hand" refers to a. the idea that the marketplace guides the self-interests of market participants into promoting general economic well-being b. the fact that social planners sometimes have to intervene, even in perfectly competitive markets, to make those markets more efficient c. the fairness of the outcome that results from market forces allocating the goods produced in the market d. the automatic maximization of consumer surplus in free markets

a. the idea that the marketplace guides the self-interests of market participants into promoting general economic well-being

7. Which area represents producer surplus when the price is P2? a. BCE b. ACF c. ABED d. AFEB

b. ACF

13. When the price is P1, producer surplus is a. A b. C c. A + B d. C + D

b. C

18. Refer to Figure 7-10. The efficient price-quantity combination is: a. P1 and Q1. b. P2 and Q2. c. P3 and Q1. d. P4 and 0 .

b. P2 and Q2.

4. The area below a demand curve and above the price is a measure of a. producer surplus b. consumer surplus c. excess supply d. willingness to pay

b. consumer surplus

14. When the price falls from P2 to P1, producer surplus a. decreases by an amount equal to C b. decreases by an amount equal to A + B c. decreases by an amount equal to A + C d. increases by an amount equal to A + B

b. decreases by an amount equal to A + B

9. Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will a. decrease, and producer surplus in the industry will decrease b. increase, and producer surplus in the industry will increase c. decrease, and producer surplus in the industry will increase d. increase, and producer surplus in the industry will decrease

b. increase, and producer surplus in the industry will increase

3. If the market price of an orange is $1.20, total consumer surplus is equal to a. $0.70 b. $1.10 c. $1.40 d. $5.0

c. $1.40

11. If the market price is $1,100, the combined total cost of all participating sellers is a. $3,700 b. $2,700 c. $2,250 d.$1,500

c. $2,250

1. If the market price of an orange is $1.20, the total quantity of oranges demanded per day is a. 1 b. 2 c. 3 d. 4

c. 3

2. If the market price of an orange is $0.70, the total quantity of oranges demanded per day is a. 5 b. 6 c. 7 d. 9

c. 7

17. Refer to Figure 7-10. At the equilibrium, total surplus is represented by the area a. A + B + C b. A + B + D + F c. A + B + C + D + E + F d. A + B + C + D + E + F + G + H

c. A + B + C + D + E + F

5. Assuming all other factors that affect consumers' behavior remain unchanged, if the price of a good falls, the consumer surplus: a. decreases b. is unchanged c. increases d. may increase, decrease, or remain unchanged

c. increases

8. Which area represents the change in producer surplus when the price rises from P1 to P2? a. BCE b. ACF c. ABED d. AFEB

d. AFEB

12. The following table represents the costs of five possible sellers. a. Dale and Jill b. Dale, Jill and Denise c. Denise, Catherine and Jackson d. Catherine and Jackson

d. Catherine and Jackson

Cost of Production

is the market value of all resources used in production

Welfare economics

is the study of how the allocation of resources affects economic well-being

If theres only one object of something, the owner will give it to the buyer who:

is willing to pay the most for the object, as they will generate the most amount of happiness

If someone needed something (such as house painting) they would choose who?

the person with the lowest selling cost (because it saves them money)

The buyers gain from the purchase calculations:

what he/she was willing to pay minus what he/she actually pays