Microeconomics [Ch. 7]
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Consumers, Producers, and the Efficiency of Markets
- 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.
- 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.
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.
- 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.
- 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.
- 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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