Chapter 7

Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 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 Abraham is rational in deciding how many cans to buy. His consumer surplus is $0.50. $0.60. $0.70. $1.00.

$0.70.

Refer to Table 7-5. The market quantity of oranges demanded per day is exactly 5 if the price of an orange, P, satisfies $1.00 < P < $1.50. $0.80 < P < $1.50. $0.80 < P < $1.00. $0.75 < P < $0.80.

$0.75 < P < $0.80.

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 $25. $30. $36. $45.

$30.

Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is $50. $150. $350. $400.

$50.

Refer to Figure 7-20. At equilibrium, total surplus is measured by the area ACG. AFG. KBG. CFG.

ACG.

A seller's willingness to sell is 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. All of the above are correct.

All of the above are correct.

Refer to Table 7-5. Who experiences the largest gain in consumer surplus when the price of an orange decreases from $1.05 to $0.75? Allison Bob Charisse Allison and Bob experience the same gain in consumer surplus, and Charisse's gain is zero.

Allison and Bob experience the same gain in consumer surplus, and Charisse's gain is zero.

Which of the Ten Principles of Economics does welfare economics explain more fully? The cost of something is what you give up to get it. Rational people think at the margin. Markets are usually a good way to organize economic activity. People respond to incentives.

Markets are usually a good way to organize economic activity.

Refer to Figure 7-12. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be lower than P1. P1. between P1 and P2. higher than P2.

between P1 and P2.

Refer to Figure 7-2. Area C represents the decrease in consumer surplus that results from a downward-sloping demand curve. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. increase in producer surplus when quantity sold increases from Q2 to Q1. decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2.

consumer surplus to new consumers who enter the market when the price falls from P2 to P1.

Refer to Table 7-5. If the market price of an orange increases from $0.60 to $1.05, then consumer surplus increases by $2.90. decreases by $2.25. decreases by $2.70. decreases by $3.85.

decreases by $2.25.

As a result of a decrease in price, new buyers enter the market, increasing consumer surplus. new buyers enter the market, decreasing consumer surplus. existing buyers exit the market, increasing consumer surplus. existing buyers exit the market, decreasing consumer surplus.

new buyers enter the market, increasing consumer surplus.

Efficiency in a market is achieved when a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. the sum of producer surplus and consumer surplus is maximized. all firms are producing the good at the same low cost per unit. no buyer is willing to pay more than the equilibrium price for any unit of the good.

the sum of producer surplus and consumer surplus is maximized.

Producer surplus directly measures the well-being of sellers. production costs. excess demand. unsold inventories.

the well-being of sellers.

Refer to Table 7-6. You have four essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You offer to sell the tickets for $325. How many tickets do you sell, and what is the total consumer surplus in the market? one ticket; $175 two tickets; $225 three tickets; $225 three tickets; $275

three tickets; $275

Refer to Figure 7-17. When the price is P1, area B+C represents total surplus. producer surplus. consumer surplus. None of the above is correct.

total surplus.

Consumer surplus equals the value to buyers minus the amount paid by buyers. value to buyers minus the cost to sellers. amount received by sellers minus the cost to sellers. amount received by sellers minus the amount paid by buyers.

value to buyers minus the amount paid by buyers.

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? $0 $10 $40 $50

$10

Refer to Figure 7-7. If producer surplus is $14, then the price of the good is $11.00. $12.00. $13.50. $14.75.

$11.00.

Refer to Figure 7-5. If the government imposes a price floor of $120 in this market, then consumer surplus will decrease by $75. $125. $225. $300.

$225.

Refer to Figure 7-7. If the price of the good is $14, then producer surplus is $17. $22. $25. $28.

$25.

Refer to Figure 7-15. If the government imposes a price ceiling of $60 in this market, then total surplus will be $187.50. $212.50. $250.00. $266.67.

$250.00.

Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is $38. $42. $46. $72.

$46.

On a graph, consumer surplus is represented by the area between the demand and supply curves. below the demand curve and above price. below the price and above the supply curve. below the demand curve and to the right of equilibrium price.

below the demand curve and above price.

Welfare economics is the study of how the allocation of resources affects economic well-being. a price ceiling compares to a price floor. the government helps poor people. a consumer's optimal choice affects her demand curve.

the allocation of resources affects economic well-being.