Ch. 7 Econ
B
An increase in the price of a good along a stationary demand curve a. increases consumer surplus b. decreases consumer surplus c. improves the material welfare of the buyers d. improves market efficiency
A
An increase in the price of a good along a stationary supply curve a. Increases producer surplus b. Decreases producer surplus c. Improves market equity d. Does all of the above
Generally no. at any quantity below the equilibrium quantity, the market fails to produce units where the value to the marginal buyer exceeds the cost. at any quantity above the equilibrium quantity, the market produces units where the cost to the marginal producer exceeds the value to the buyers.
Can a benevolent social planner choose a quantity that provides greater economic welfare than the equilibrium quantity generated in a competitive market? Why?
D
Consumer surplus is the area a. above the supply curve and below the price. b. below the supply curve and above the price. c. above the demand curve and below the price. d. below the demand curve and above the price. e. below the demand curve and above the supply curve.
T
Cost to the seller includes the opportunity cost of the seller's time.
D
If a benevolent planner chooses to produce less than the equilibrium quantity of a good, then a. Producer surplus is maximized b. Consumer surplus is maximized c. Total surplus is maximized d. The value placed on the last unit of production by buyers exceeds the cost of production e. The cost of production on the last unit produced exceeds the value placed on it by buyers
E
If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then a. Producer surplus is maximized b. Consumer surplus is maximized c. Total surplus is maximized d. The value placed on the last unit of production by buyers exceeds the cost of production e. The cost of production on the last unit produced exceeds the value placed on it by buyers
C
If a market generates a side effect or externality, then free market solutions a. Generate equality b. Are efficient c. Are inefficient d.Maximize producer surplus
D
If a market is efficient, then a. The market allocates outputs to the buyers who value it the most b. The market allocates buyers to the sellers who can produce the good at least cost c. The quantity produced in the market maximizes the sum of consumer and producer surplus d. All of the above are true e. None of the above are true
C
If a producer has market power (can influence the price of the product in the market) then free market solutions a. Generate equality b. Are efficient c. Are inefficient d. Maximize consumer surplus
E
If buyers are rational and there is no market failure, a. Free market solutions are efficient b. Free market solutions generate equality c. Free market solutions maximize total surplus d. All of the above are true e. A and c are correct
($10 -$5)+($10 - $7)+($10 - $9) = $9
If the cost for Moe to mow a lawn is $5, for Larry to mow a lawn is $7, and for Curly to mow a lawn is $9, what is the value of their producer surplus if each mows a lawn and the price for lawn mowing is $10?
T
If the demand curve in a market is stationary, consumer surplus decreases with the price in that market increases.
C
In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should a. Choose a price above the market equilibrium price b. Choose a price below the market equilibrium price c. Allow the market to seek equilibrium on its own d. Choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers)
A
Joe has ten baseball gloves and Sue has none. A baseball glove costs $50 to produce. If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximize a. Efficiency, Joe should receive the glove b. Efficiency, Sue should receive the glove c. Consumer surplus, both should receive a glove d. Equity, Joe should receive the glove
F
Total surplus is the cost to sellers minus the value to buyers.
producer surplus is the amount a seller has paid for a good minus the sellers cost of providing it. it is measured by the area below the price and above the supply curve.
What is producer surplus, and how is it measured?
the height of the demand curve at any quantity is the marginal buyers willingness to pay. therefore, a plot of the buyers willingness to pay for each quantity is a plot of the demand curve.
What is the relationship between the buyers' willingness to pay for a good and the demand curve for that good?
the height of the supply curve at any quantity is the marginal seller's cost. therefore, a plot of the sellers cost for each quantity is a plot of the supply curve.
What is the relationship between the sellers' cost to produce a good and the supply curve for that good?
C
A buyer's willingness to pay is a. that buyer's consumer surplus. b. that buyer's producer surplus. c. that buyer's maximum amount he is willing to pay for a good. d. that buyer's minimum amount he is willing to pay for a good. e. none of the above.
T
Consumer surplus is a good measure of buyers' benefits if buyers are rational.
F
Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost.
T
Equilibrium in a competitive market maximizes total surplus.
T
Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market.
F
Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.
only those who have costs at or below the market price will be able to produce and sell that good.
How does a competitive market choose which producers will produce and sell a product?
B
If a buyer's willingness to pay for a new Honda is $20,000 and she is able to actually buy it for $18,000, her consumer surplus is a. $0. b. $2,000. c. $18,000. d. $20,000. e. $38,000.
F
If your willingness to pay or a hamburger is $3.00 and the price is $2.00, your consumer surplus is $5.00.
yes, because it maximizes the area below demand curve and above the supply curve, or total surplus.
Is a competitive market efficient? Why or why not?
F
Producer surplus is a measure of the unsold inventories of suppliers in a market.
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
E
Total surplus is the area a. Above the supply curve and below the price b. Below the supply curve and above the price c. Above the demand curve and below the price d. Below the demand curve and above the price e. Below the demand curve and above the supply curve
it is a resource allocation that maximizes the total surplus received by all members of society.
What does an economist mean by "efficiency"?
consumer surplus is the amount a buyer is willing to pay of a good minus the amount the buyer actually pays. it is measured as the area below the demand curve and above the price.
What is consumer surplus, and how is it measured?
Zero, because the marginal buyer is the buyer who would leave the market is the price were any higher. therefore, they are paying there willingness to pay and are receiving no surplus.
What is the value of consumer surplus for the marginal buyer? Why?
B
Adam Smith's "invisible hand" concept suggests that a competitive market outcome a.Minimizes total surplus b. Maximizes total surplus c. Generates equality among the members of society d. Does both b and c
B
Medical care clearly enhances people's lives. Therefore, we should consume medical care until a. Everyone has as much as they would like b. The benefit buyers place on medical care is equal to the cost of producing it c. Buyers receive no benefit from another unit of medical care d. We must cut back on the consumption of other goods
A
Producer surplus is the area a. above the supply curve and below the price. b. below the supply curve and above the price. c. above the demand curve and below the price. d. below the demand curve and above the price. e. below the demand curve and above the supply curve.
T
Producer surplus is the area above the supply curve and below the price.
F
Producing more of a product always adds to total surplus.
B
Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. If costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike? a. $100 b. $200 c. $300 d. $400 e. $500
C
Suppose there are three identical vases available to be purchased. Buyer is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market? a. One vase will be sold, and consumer surplus is $30. b. One vase will be sold, and consumer surplus is $5. c. Two vases will be sold, and consumer surplus is $5. d. Three vases will be sold, and consumer surplus is $0. e. Three vases will be sold, and consumer surplus is $80.
T
The height of the supply curve is the marginal seller's cost.
Market Failure
The inability of some unregulated markets to allocate resources efficiency
T
The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient.
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 member of society
Equality
The property of distributing prosperity uniformly among the members of the society
D
The seller's cost of production is a. The seller's consumer surplus b. The seller's producer surplus c. The maximum amount the seller d. The minimum amount the seller e. None of the above
Welfare Economics
The study of how the allocation of resources affects economic well-being
T
The two main types of market failure are market power and externalities.
Cost
The value of everything a seller must give up to produce a good