Econ 202 Chapter 4

Which of the following statements best describes the concept of consumer surplus?

"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda's consumer surplus from the purchase is

$0

Arthur buys a new cell phone for $150. He receives consumer surplus of $150 from the purchase. How much does Arthur value his cell phone?

$300

Lucinda buys a new GPS system for $250. She receives consumer surplus of $75 from the purchase. How much does Lucinda value her GPS system?

$325

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for $125. Paul's consumer surplus from the purchase is

$75

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied.

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?

Both the supply and demand curves have shifted to the left. As a result, there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.

Which of the following statements is true?

Consumer surplus measures the net benefit from participating in a market.

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

Demand

________ is maximized in a competitive market when marginal benefit equals marginal cost.

Economic surplus

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

False

Market equilibrium occurs where supply equals demand.

False

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

False

The total amount of producer surplus in a market is equal to the area below the supply curve.

False

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.

A ________ curve shows the marginal cost of producing one more unit of a good or service.

Supply

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

The demand for Lincoln letters increases and the supply of Booth letters increases.

Which of the following is evidence of a shortage of walnuts?

The quantity demanded of walnuts is greater than the quantity supplied.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

A shortage occurs when the market price is lower than the equilibrium price.

True

A surplus occurs when the actual selling price is above the market equilibrium price.

True

In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

True

Marginal cost is the additional cost to a firm of producing one more unit of a good or service.

True

Producer surplus is the difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product.

True

An externality is

a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

a decrease in the price of flour

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

a decrease in the price of orange juice processing

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

a shortage of oranges.

Marginal benefit is equal to the ________ benefit to a consumer receives from consuming one more unit of a good or service.

additional

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

Private costs

are borne by producers of a good while social costs are borne by society at large.

If you burn your trash in the back yard in spite of regulations against it, then you are

avoiding the private costs associated with disposing your trash some other way and creating a social cost.

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

demand

Economic surplus

is equal to the sum of consumer surplus and producer surplus.

The difference between the ________ and the ________ from the sale of a product is called producer surplus.

lowest price a firm would have been willing to accept; price it actually receives

In a competitive market the demand curve shows the ________ received by consumers and the supply curve shows the ________.

marginal benefit; marginal cost

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?

research finds that consumption of olive oil reduces the risk of heart disease

Marginal cost is

the additional cost to a firm of producing one more unit of a good or service.

The total amount of producer surplus in a market is equal to

the area above the market supply curve and below the market price.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.

the area under the demand curve

In a competitive market equilibrium

the marginal benefit equals the marginal cost of the last unit sold.

A negative externality exists if

the marginal social cost of producing a good or service exceeds the private cost.

Willingness to pay measures

the maximum price that a buyer is willing to pay for a good.

Suppliers will be willing to supply a product only if

the price received is at least equal to the additional cost of producing the product.

If, in a competitive market, marginal benefit is less than marginal cost

the quantity sold is greater than the equilibrium quantity.

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

the social cost of production

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which

the sum of consumer surplus and producer surplus is at a maximum.