ECON 201 Part 4 Market Surplus

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is a. $1.85. b. $0.95. c. $1.15. d. $1.30.

a. $1.85.

Refer to Figure 7-8. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH

a. BCG

If the demand for light bulbs increases, producer surplus in the market for light bulbs a. Increases. b. Decreases. c. Remains the same. d. May increase, decrease, or remain the same

a. Increases.

Refer to Table 7-6. You have four essentially identical extra tickets to the Midwest Regional Sweet 16 game in the men's NCAA basketball tournament. The table shows the willingness to pay of the four potential buyers in the market for a ticket to the game. You offer to sell the tickets for $400. How many tickets do you sell, and what is the total consumer surplus in the market? a. One ticket: $100 b. Two ticket: $100 c. Two ticket: $0 d. Three ticket: $0

b. Two ticket: $100

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. A resistance price b. Willingness to pay c. Consumer surplus d. Producer surplus

b. Willingness to pay

The marginal seller is the seller who a. Cannot compete with the other sellers in the market. b. Would leave the market first if the price were any lower. c. Can produce at the lowest cost. d. Has the largest producer surplus

b. Would leave the market first if the price were any lower.

Refer to Table 7-5. If the market price of an orange is $1.20, the market quantity of oranges demanded per day is a. 1 b. 2 c. 3 d. 4

c. 3

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 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. Both existing customers who get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus? a. The price of a dozen eggs increases from 40 cents to 55 cents. b. The price of a dozen eggs increases from 55 cents to 70 cents. c. The price of a dozen eggs increases from 55 cents to 75 cents. d. All of these price increases would cause both companies to experience a loss in producer surplus.

c. The price of a dozen eggs increases from 55 cents to 75 cents.

Refer to Table 7-3. If the market price for the good is $20, who will purchase the good? a. Ming-la b. Carlos c. Quilana d. All three buyers experience the same loss of consumer surplus

d. All three buyers experience the same loss of consumer surplus