Topic Quiz Chapter 2 - Module 2

If you are willing to sell your landscaping business for $620,000 and someone offers you $680,000 for it, this transaction will generate

$60,000 of buyer surplus and unknown amount of seller surplus. no seller or buyer surplus. $60,000 of buyer surplus and $60,000 of seller surplus. D. $60,000 of seller surplus and an unknown amount of buyer surplus.

Which of these actions creates value?

A. a corporate raider buying a struggling firm for $50 million and selling off its assets for $100 million all of these actions create value paying a major league baseball player $30 million when his value-added to the team is $3 million a student paying $100,000 to obtain a B.A. in English, and then following the exact same career path as he would have without that degree

The difference between the price the buyer is willing to pay and actually pays is known as

A. buyer (consumer) surplus. seller (producer) surplus. willingness to pay. willingness to accept.

Wealth generating transactions typically

A. increase total surplus. are zero-sum, in that the net gain to the economy is zero. benefit third parties but not the participants. benefit one involved party but harm the other.

A price ceiling

A. is equivalent to a tax on producers and a subsidy to consumers. increases producer surplus. is binding only when set above the equilibrium price. increases market efficiency.

A consumer values a car at $90,000, and it costs a producer $70,000 to make the same car. If the transaction is completed at $85,000, the transaction will generate $20,000 worth of

A. total surplus. seller surplus. none of these choices are correct, because no surplus is created. buyer surplus.

The U.S. government prohibition on the selling of kidneys (at prices above zero)

all of these choices are correct. increases consumer surplus over what it would be if a market for kidneys was allowed to form. results in more healthy kidneys being supplied than are demanded. D. leads to the formation of secondary markets for buying and selling kidneys.

Taxes

are described by all of these choices. B. cause market distortions. increase the number of available wealth-creating transactions. increase buyer surplus.

When a well-functioning market is in equilibrium,

none of these choices are correct. government maximizes its total revenue. C. total surplus is maximized without government intervention. total surplus is zero.

The invisible hand

results in an inefficient allocation of resources because market participants act in their self-interests. assists in moving assets from higher- to lower-valued uses. is not described by any of these choices. D. argues that prices guide economic decisions.