econ chapter 4
Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus is equal to: $70. $90. $80. $20.
$70
_____ guide decision makers in their transactions in the marketplace
Economic signals
For calculating producer surplus, it is important to distinguish between the minimum price at which a seller is willing to sell a good and the seller's cost. T/F
FALSE
If the market for concert tickets is in equilibrium and the concert promoter tries to increase the number of tickets sold, all other things constant, total surplus will increase. T/F
FALSE
If the market for smartphones is initially in equilibrium at a price of $250 and consumption is reallocated so that Amanda, who values a phone at $300, is required to give it to Brent, who values a phone at $225, total surplus in the smartphone market will increase. T/F
FALSE
Which of the following statements is (are) TRUE about market failures? I. Property rights are clearly defined. II. Information is available to all decision makers. III. External costs are not considered in production decisions by producers.
III
Equilibrium in the market for peanut butter is disturbed by an increase in the price of peanuts. Assuming that the supply curve of peanut butter is upward-sloping, producer surplus in the peanut butter market: A. Will increase B. Will decrease C. Will not change D. May change, but we cant determine the change without more information
May change, but we cant determine the change without more information
Assuming that gasoline and cars are complements in consumption, if the price of gasoline rises, the producer surplus of auto manufacturers decreases. T/F
TRUE
Efficiency addresses the best way to achieve a goal once it has been determined T/F
TRUE
If the market for tickets to the World Series is in equilibrium but owners of tickets who would have sold their tickets are not allowed to sell, while fans who would not sell their tickets are required to sell, total surplus would decrease. T/F
TRUE
Prices are important economic signals because they convey information about how much consumers are willing to pay for a good and how much it costs sellers to produce a good. T/F
TRUE
There is a trade-off between equity and efficiency in that policies designed to promote equity often come at the cost of decreased efficiency. T/F
TRUE
A consumer's willingness to pay depends on: A. The cost of producing the g/s B. The size of surplus of the g/s C. The expected additional benefit of consuming the g/s D. The size of the shortage of the g/s
The expected additional benefit of consuming the g/s
_____ can allow for mutually beneficial trades
Well defined property rights
If the price is above the equilibrium price in the market for grapefruit, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus: A. Will decrease B. will increase. C. may change, but we cannot determine the change without more information. D. will not change.
Will decrease
Some smaller retailers often go out of business when Walmart opens a new store. The most likely reason for this development is that: a)consumers in those areas receive no consumer surplus from Walmart. b)consumers in those areas receive a larger consumer surplus from shopping at Walmart than from the smaller stores. c)Walmart practices unfair pricing methods that reduce consumer surplus over time. d)smaller stores increase prices to compete.
consumers in those areas receive a larger consumer surplus from shopping at Walmart than from the smaller stores
Along a given downward-sloping demand curve, an increase in the price of a good will: have no effect on consumer surplus. decrease producer surplus. decrease consumer surplus. increase consumer surplus.
decrease consumer surplus
Along the upward-sloping supply curve for brownies, a decrease in the price of brownies will: Increase consumer surplus Decrease producer surplus
decrease producer surplus
If total surplus falls, there may have been a(n) _____ in demand or a(n) _____ in supply. decrease; increase increase; decrease decrease; decrease increase; increase
decrease; decrease
All of the following are possible reasons for market failure EXCEPT: -extremely high prices for medical care. -monopoly firms. -buyers and sellers not having access to the same information regarding a good or service. -public goods.
extremely high prices for medical care
Market failure refers to a situation in which: -markets fail to reach an efficient outcome. -markets fail to reach a fair outcome. -market-determined wages are not high enough to raise all workers above the poverty line. -markets establish a high price for necessities.
markets fail to reach an efficient outcome
Markets work because they allocate sales to the potential sellers who most value the right to sell a good, as indicated by their ability to produce the good at the lowest cost. This statement illustrates: consumer surplus. producer surplus. deadweight loss. total surplus.
producer surplus
Suppose the United States removes sugar quotas and the market price of sugar drops. If the demand curve for candy bars is downward-sloping, in the candy bar market we would expect: the consumer surplus to be unchanged. the consumer surplus to increase. the deadweight loss to increase. the consumer surplus to decrease.
the consumer surplus to increase
Maximum total surplus in the market for chocolate occurs when:
the market is in equilibrium
Assuming that gasoline and cars are complements in consumption, if the price of gasoline rises, the producer surplus of auto manufacturers decreases. True False
true
If the price of a good rises along an upward-sloping supply curve, then producer surplus: may change, but we can't tell how. will remain the same. will increase. will decrease.
will increase
Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market: will not change. may change, but it is impossible to tell whether it will increase or decrease. will increase. will decrease.
will increase
When there is a bountiful harvest of grapefruit, assuming that the demand curve for grapefruit is downward-sloping, total consumer surplus in the grapefruit market: A. Will decrease B. May change, but we cant tell how C. Will remain the same D. Will increase
will increase
Along a straight-line downward-sloping demand curve, a decrease in the market price of a good a. Will increase consumer surplus b. will cause no change in consumer surplus. c. may either decrease or increase consumer surplus. d. will decrease consumer surplus.
will increase consumer surplus
Suppose you pay $8 to see Tom Cruise in his next movie. Suppose Mr. Cruise receives $21 million to work in this movie. This means that: Tom Cruise received a producer surplus of $21 million. you would have been better off being more self-reliant in the movie market. you and Tom Cruise benefited from this transaction. you received a consumer surplus of $8.
you and Tom Cruise benefited from this transaction
