Microeconomics [ch. 7]

35 Questions  I  By Emy_2
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Microeconomics Quizzes & Trivia
Consumers, Producers, and the Efficiency of Markets

  
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Questions and Answers

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  • 1. 
    Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost
    • A. 

      True

    • B. 

      False


  • 2. 
    If the demand curve in a market is stationary, consumer surplus decreases when the price in the market increases
    • A. 

      True

    • B. 

      False


  • 3. 
    If your willingness to pay for a hamburger is $3.00 and the price is $2.00, your consumer surplus is $5.00
    • A. 

      True

    • B. 

      False


  • 4. 
    Producer surplus is a measure of the unsold inventories of suppliers in a market
    • A. 

      True

    • B. 

      False


  • 5. 
    Consumer surplus is a good measure of buyers' benefits if buyers are rational
    • A. 

      True

    • B. 

      False


  • 6. 
    Cost to the seller includes the opportunity cost of the seller's time
    • A. 

      True

    • B. 

      False


  • 7. 
    The height of the supply curve is the marginal seller's cost
    • A. 

      True

    • B. 

      False


  • 8. 
    Total surplus is the cost to sellers minus the value to buyers
    • A. 

      True

    • B. 

      False


  • 9. 
    Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price
    • A. 

      True

    • B. 

      False


  • 10. 
    Producer surplus is the area above the supply curve and below the price
    • A. 

      True

    • B. 

      False


  • 11. 
    The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficent
    • A. 

      True

    • B. 

      False


  • 12. 
    Equilibrium in a competitive market maximizes total surplus
    • A. 

      True

    • B. 

      False


  • 13. 
    The two main types of market failure are market power and externalities
    • A. 

      True

    • B. 

      False


  • 14. 
    Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market
    • A. 

      True

    • B. 

      False


  • 15. 
    Producing more of a product always adds to total surplus
    • A. 

      True

    • B. 

      False


  • 16. 
    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


  • 17. 
    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


  • 18. 
    If a buyer's willingness to pay for a new Honda is $20,000 and she i 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


  • 19. 
    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


  • 20. 
    Suppose there are three identical vases available to be purchased.  Buyer 1 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 rpice 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


  • 21. 
    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


  • 22. 
    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


  • 23. 
    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


  • 24. 
    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 is willing to accept for a good

    • D. 

      The minimum amount the seller is willing to accept for a good

    • E. 

      None of the above


  • 25. 
    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


  • 26. 
    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


  • 27. 
    Adam Smith's "invisible hand" concept suggests that a competitive market outcome
    • A. 

      Minimizes total suprlus

    • B. 

      Maximizes total surplus

    • C. 

      Generates equality among the members of society

    • D. 

      Does both b and c


  • 28. 
    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)


  • 29. 
    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


  • 30. 
    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 surlus


  • 31. 
    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


  • 32. 
    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


  • 33. 
    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


  • 34. 
    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


  • 35. 
    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 bew bike?
    • A. 

      $100

    • B. 

      $200

    • C. 

      $300

    • D. 

      $400

    • E. 

      $500


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