Unit 4: Consumers, Producers and the Efficiency of Markets

Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton, his producer surplus per ton is

$150.

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to

$4.

Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

$64.

Refer to the below figure. If the price were P3, consumer surplus would be represented by the area

A.

A seller's willingness to sell is

All of the above are correct.

Refer to Figure 7-10. Which area represents producer surplus when the price is P1?

BCG

Refer to the below figure. At equilibrium, producer surplus is represented by the area:

D+H+F.

Refer to the below diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is:

a + b + c + d.

Refer to the below diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:

a + b.

Refer to the below diagram. If actual production and consumption occur at Q1:

a welfare loss (or deadweight loss) of b + d occurs.

Refer to the below diagram. If actual production and consumption occur at Q3:

an efficiency loss (or deadweight loss) of e + f occurs.

Refer to the below diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c + d.

Refer to the below diagram. If actual production and consumption occur at Q2:

efficiency is achieved.

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will

increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games.

Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would

increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato chips.

Refer to the below figure. At the quantity Q2, the marginal benefit to buyers

is P2, and the marginal cost to sellers is P3.

Refer to the below diagram. At quantity Q1:

maximum willingness to pay exceeds minimum acceptable price.

Consumer surplus

measures the benefit buyers receive from participating in a market.

Refer to the below diagram. At quantity Q3:

minimum acceptable price exceeds maximum willingness to pay.

Total surplus in a market will increase when the government

removes a binding price ceiling from that market.

Refer to Figure 7-22. If 110 units of the good are bought and sold, then

the marginal cost to sellers is greater than marginal value to buyers.

Refer to Figure 7-22. If 40 units of the good are bought and sold, then

the marginal value to buyers is greater than the marginal cost to sellers.

Refer to the below diagram. At quantity Q2:

the sum of consumer and producer surplus is maximized

Refer to the below figure. When the price is P1, area B+C represents _

total surplus.

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

willingness to pay.