Micro- Chapter 7
Refer to the Figure. If the equilibrium price rises from $20 to $40, what is the additional producer surplus? a.$3,600 b.$2,400 c.$4,800 d.$1,200
a.$3,600 When the price increases from $20 to $40, producer surplus increases by the area between the two prices and up to a quantity of 240. To compute this area, first find the area of the rectangle between the prices and up to a quantity of 120, ($40 - $20) x 120 = $2,400. Next, compute the area of triangle ABC, ½ x (240 - 120) x ($40 - $20) = $1,200. The sum of these two areas, $3,600, is the increase in producer surplus.
Refer to the Figure. Which area represents consumer surplus at a price of P2? a.UXZ b.UVW c.WVXY d.WYZ
a.UXZ The area below the demand curve and above the price is the consumer surplus.
Refer to the Figure. At the equilibrium price, producer surplus is a.$200. b.$120. c.$320. d.$240.
b.$120. Producer surplus is measured by the area above the supply curve and below the equilibrium price, which is $28 in this example. The value of producer surplus is computed as ½ x 10 x ($28 - $4) = $120.
Refer to the Figure. Which area represents consumer surplus at a price of P1? a.UVW b.WYZ c.WVXY d.UXZ
b.WYZ The area below the demand curve and above the price is the consumer surplus.
Refer to the Table. If the market price of a cookie is $2.35, then the market quantity of cookies demanded per day is a.2. b.4. c.3. d.1.
c.3. When the market price of a cookie is $2.35, Tarek buys two cookies and Sarah buys one cookie for a total of three cookies demanded. Regina does not buy any cookies because the price exceeds her willingness to pay for the first cookie.
Total surplus is represented by the area a.to the right of the demand curve and to the left of the supply curve above the price. b.to the right of the supply curve and to the left of the demand curve below the price. c.between the demand and supply curves up to the point of equilibrium. d.under the demand curve and above the price.
c.between the demand and supply curves up to the point of equilibrium. Total surplus is the sum of consumer surplus and producer surplus, shown as the area below the demand curve and above the supply curve up to the point of equilibrium
Refer to the Figure. For quantities less than F, the value to the marginal buyer is a.not measurable with the information provided. b.less than the cost to the marginal seller, so increasing the quantity increases total surplus. c.greater than the cost to the marginal seller, so increasing the quantity increases total surplus. d.unrelated to the cost to the marginal seller, so increasing the quantity does not affect total surplus.
c.greater than the cost to the marginal seller, so increasing the quantity increases total surplus. For quantities less than the equilibrium quantity, the value to the marginal buyer is greater than the cost to the marginal seller, so increasing the quantity increases total surplus.
Which of the following will cause an increase in producer surplus? a.income decreases and buyers consider the good to be normal b.the price of a complement increases c.the number of buyers in the market increases d.the imposition of a non-binding price floor in the market
c.the number of buyers in the market increases When the number of buyers in the market increases, demand increases. When demand increases, price increases and producer surplus increases.
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it
willingness to pay
the maximum amount that a buyer will pay for a good
efficiency
the property of a resource allocation of maximizing the total surplus received by all members of society
welfare economics
the study of how the allocation of resources affects economic well-being
Total surplus is represented by the area a.between the demand and supply curves up to the point of equilibrium. b.to the right of the demand curve and to the left of the supply curve above the price. c.to the right of the supply curve and to the left of the demand curve below the price. d.under the demand curve and above the price.
a.between the demand and supply curves up to the point of equilibrium. Total surplus is the sum of consumer surplus and producer surplus, shown as the area below the demand curve and above the supply curve up to the point of equilibrium.
Refer to the Table. If ABC Corp., XYZ Inc., and Acme Products sell the good, and the resulting producer surplus is $5,700, then the price must have been a.$14,500. b.$13,000. c.$16,000. d.$12,000.
b.$13,000. When the price is $13,000, producer surplus is $13,000 - $12,500 = $500 for Acme Products, $13,000 - $11,000 = $2,000 for XYZ Inc., and $13,000 - $9,800 = $3,200 for ABC Corp. Summing the producer surplus for individual sellers, the total surplus in the market is $500 + $2,000 + $3,200 = $5,700.
Refer to the Figure. At the equilibrium price, consumer surplus is a.$400. b.$200. c.$120 d.$320.
b.$200. Consumer surplus is measured by the area below the demand curve and above the equilibrium price, which is $28 in this example. The value of consumer surplus is computed as ½ x 10 x ($68 - $28) = $200.
If Imelda sells a pair of shoes for $85, and her producer surplus from the sale is $41, her cost must have been a.$126. b.$44. c.We would have to know the consumer surplus in order to make this determination. d.$41.
b.$44. Producer surplus is the amount a seller is paid for a good minus the seller's cost of providing it, so if Imelda is paid $85 and her producer surplus is $41, then her cost must have been $85 - $41= $44.
If the production technology for smart televisions improves, what happens to consumer surplus in the market for smart televisions? a.Consumer surplus depends on what event led to the improvement in production technology. b.Consumer surplus increases. c.Consumer surplus will not change; only producer surplus changes. d.Consumer surplus decreases.
b.Consumer surplus increases. When production technology improves, supply shifts to the right and the equilibrium price decreases. When the price decreases, consumer surplus increases.
Refer to the Figure. If the price decreases from $11 to $8 due to a shift in the supply curve, consumer surplus increases by a.$120. b.$60. c.$30. d.$90
d.$90. When the price is $11, consumer surplus is ½ x 20 x ($14 - 11) = $30. When price is $8, consumer surplus is ½ x 40 x ($14 - $8) = $120. The increase in consumer surplus is $120 - $30 = $90.
Refer to the Table. Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is a.$24. b.$12. c.$192. d.$96.
d.$96. Consumer surplus is measured by the area below the demand curve and above the equilibrium price, which is $12 in this example. The value of consumer surplus is computed as ½ x 8 x ($36 - $12) = $96.
Suppose Aila and Vika attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that she will bid for a spa weekend at a resort. This maximum is called a.social welfare. b.social benefit. c.consumer surplus. d.willingness to pay.
d.willingness to pay. The maximum amount a consumer has in mind when considering a purchase is called his/her willingness to pay.
cost
the value of everything a seller must give up to produce a good
The distinction between efficiency and equality can be described as follows: a.Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie uniformly among members of society. b.Efficiency refers to maximizing the equilibrium quantity; equality refers to minimizing the equilibrium price. c.Efficiency refers to the benevolent social planner; equality refers to individual buyers and sellers. d.Efficiency refers to distributing the pie uniformly among members of society; equality refers to maximizing the size of the pie.
A.Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie uniformly among members of society. Efficiency refers to maximizing the total surplus received by all members of society, while equality refers to distributing economic prosperity uniformly among the members of society.
Clarence would be willing to pay $50 to attend an opera, but he buys a ticket for $45. Clarence values the opera at a.$50. b.$5. c.$45. d.$15.
a.$50. Clarence is willing to pay $50 to attend the opera, so he values the opera at $50. When he buys a ticket for $45 he has consumer surplus of $5, which is the difference between the price he is willing to pay and the price he must pay to receive the item.
Refer to the Figure. If the price of the good is $60, then consumer surplus amounts to a.$30. b.$120. c.$80. d.$20.
c.$80. If the price is $60, three units will be demanded. Consumer surplus is $30 ($90 - $60) on the first unit, an additional $30 ($90 - $60) on the second unit, and $20 ($80 - $60) on the third unit. Total consumer surplus amounts to $80.