EXAM 3: Consumer and Producer Surplus Chapter 7 (Practice) (Practice)

Suppose the demand for peanuts increases. What will happen to producer surplus in the market for peanuts? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged.

a. It increases

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. cost of building fences

Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus is a. $150. b. $350. c. $500. d. $850.

a. $150.

All else equal, what happens to consumer surplus if the price of a good decreases? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged. d. Consumer surplus may increase, decrease, or remain unchanged.

a. Consumer surplus increases.

When there is a technological advance in the pork industry, consumer surplus in that market will a. Increase b. decrease. c. not change, since technology affects producers and not consumers. d. not change, since consumers' willingness to pay is unaffected by the technological advance.

a. Increase

An example of positive analysis is studying a. how market forces produce equilibrium. b. whether equilibrium outcomes are fair. c. whether equilibrium outcomes are socially desirable. d. if income distributions are fair.

a. how market forces produce equilibrium.

Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.

a. seller's willingness to sell.

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

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

a. the well-being of sellers.

If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is a. zero. b. negative, and the consumer would not purchase the product. c. positive, and the consumer would purchase the product. d. There is not enough information given to answer this question.

a. zero.

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.

b. Consumer surplus decreases

Which of the following will cause an increase in consumer surplus? a. an increase in the production cost of the good b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good d. the imposition of a binding price floor in the market

b. a technological improvement in the production of the good

If the government allowed a free market for transplant organs such as kidneys to exist, critics argue that such a market would a. not reduce the shortage of organs. b. benefit rich people but not poor people. c. be inefficient because markets are not good at allocating scarce resources. d. be inferior to a plan imposed by a benevolent dictator.

b. benefit rich people but not poor people.

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a. maximizes both the total revenue for firms and the quantity supplied of the product. b. maximizes the combined welfare of buyers and sellers. c. minimizes costs and maximizes output. d. minimizes the level of welfare payments.

b. maximizes the combined welfare of buyers and sellers.

If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that a. producer surplus equals consumer surplus in the market for wallpaper. b. the market for wallpaper is in equilibrium. c. on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers. d. All of the above are correct

b. the market for wallpaper is in equilibrium.

Total surplus is a. the total cost to sellers of providing the good minus the total value of the good to buyers. b. the total value of the good to buyers minus the cost to sellers of providing the good. c. the difference between consumer surplus and sellers' cost. d. always smaller than producer surplus.

b. the total value of the good to buyers minus the cost to sellers of providing the good.

At the equilibrium price of a good, the good will be sold by those sellers a. whose cost is more than price. b. whose cost is less than price. c. that can produce the good. d. enter the market first.

b. whose cost is less than price.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. deadweight loss. b. willingness to pay. c. consumer surplus. d. producer surplus.

b. willingness to pay.

f Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have been a. $48. b.$32. c. $8. d. $40.

b.$32.

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at a. $5. b. $15. c. $20. d. $35.

c. $20.

Producer surplus is the area a. under the supply curve. b. between the supply and demand curves. c. below the price and above the supply curve. d. under the demand curve and above the price.

c. below the price and above the supply curve.

A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.

c. sellers' costs.

Which of the following will cause an increase in producer surplus? a. the imposition of a binding price ceiling in the market b. buyers expect the price of the good to be lower next month c. the price of a substitute increases d. income increases and buyers consider the good to be inferior

c. the price of a substitute increases

Economists typically measure efficiency using a. the price paid by buyers. b. the quantity supplied by sellers. c. total surplus. d. profits to firms.

c. total surplus.

An example of normative analysis is studying a. how market forces produce equilibrium. b. surpluses and shortages. c. whether equilibrium outcomes are socially desirable. d. income distributions

c. whether equilibrium outcomes are socially desirable.