ECO 2306 CH7 QUESTIONS

Pat bought a new car for $15,500 but was willing to pay $24,000. The consumer surplus is a. $8,500. b. $15,500. c. $24,000. d. $39,500.

a

A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller's producer surplus. b. sellers's cost of production. c. seller's profit. d. average willingness to pay of buyers of the product.

b

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

b

Jeff decides that he would pay as much as $2,000 for a new laptop computer. He buys the computer and realizes a consumer surplus of $300. How much did Jeff pay for his computer? a. $300. b. $1,700. c. $2,000. d. $2,300.

b

The decisions of buyers and sellers that affect people who are not participants in the market create a. market power. b. externalities. c. profiteering. d. market equilibrium.

b

Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a. $95. b. $80. c. $75. d. $60.

b

Total surplus measures the a. loss to buyers from paying higher prices plus the benefit to sellers from receiving lower prices. b. buyers' willingnesses to pay less the sellers' costs. c. fairness of the distribution of resources in society. d. value to the government of goods and services sold in society.

b

At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes for a. $6.50 each. b. $7.50 each. c. $9.50 each. d. $10.50 each.

c

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to a. only existing customers who now get lower prices on the gowns they were already planning to purchase. b. only new customers who enter the market because of the lower prices. c. both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices. d. Consumer surplus does not increase; it decreases.

c

Inefficiency exists in an economy when a good is a. being produced with less than all available resources. b. not distributed fairly among buyers. c. not being produced by the lowest-cost producers. d. being consumed by buyers who value it most highly.

c

Justin builds fences for a living. Justin's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a. producer surplus. b. producer deficit. c. cost of building fences. d. profit.

c

Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. how the allocation of resources affects economic well-being. d. the effect of income redistribution on work effort.

c

At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes a. consumer surplus but not producer surplus. b. producer surplus but not consumer surplus. c. both consumer and producer surplus. d. neither consumer nor producer surplus.

d

Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650. Denise a. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150. b. buys the dishwasher, and on her purchase she experiences a consumer surplus of $-150. c. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $150. d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

d

If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to occur? a. The supply of kidneys would increase. b. The shortage of kidneys would decrease. c. Many lives would be saved. d. The allocation of kidneys would be fair.

d

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged.

d

Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

d