Ch07 Consumer Surplus PDF

Ch07 Consumer Surplus Multiple Choice Questions 1. The price resulting in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes the combined welfare of buyers and sellers. c. maximizes tax revenue for the governme...

Ch07 Consumer Surplus Multiple Choice Questions 1. The price resulting in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes the combined welfare of buyers and sellers. c. maximizes tax revenue for the government. d. minimizes the expenditure of buyers. ANSWER: b 2. The maximum price that a buyer will pay for a good is called a. consumer surplus. b. producer surplus. c. efficiency. d. willingness to pay. ANSWER: d 3. Consumer surplus is equal to the following: a. Amount paid by buyers - Costs of sellers. b. Value to buyers - Amount paid by buyers. c. Value to buyers - Costs of sellers. d. Value to buyers - Willingness to pay of buyers. ANSWER: b 4. Larry purchases a set of pens for $10, and his consumer surplus is $1. How much is Larry willing to pay for the set of pens? a. $10 b. $5.5 c. $11 d. $9 ANSWER: c 1 5. If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the a. consumer enjoys consumer surplus if he or she buys the good. b. consumer does not purchase the good. c. market is not a competitive market. d. price of the good will fall due to market forces. ANSWER: b 6. Henry is willing to pay 45 cents, and Janine is willing to pay 55 cents, for 1 pound of bananas. When the price of bananas falls from 50 cents a pound to 40 cents a pound, a. Henry experiences an increase in consumer surplus, but Janine does not. b. Janine experiences an increase in consumer surplus, but Henry does not. c. both Janine and Henry experience an increase in consumer surplus. d. neither Janine nor Henry experiences an increase in consumer surplus. ANSWER: c 7. Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $425. Billie Jo's willingness to pay for the dishwasher is a. $150. b. $425. c. $500. d. $850. ANSWER: c 8. If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is a. zero. b. negative, and the consumer would not purchase the product. c. positive, and the consumer would purchase the product. d. There is not enough information given to answer this question. ANSWER: a 2 Figure 7-1 9. Refer to Figure 7-1. When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D. ANSWER: c 10. Refer to Figure 7-1. Suppose that the price falls from P2 to P1. Area C represents the a. decrease in consumer surplus that results from a downward-sloping demand curve. b. consumer surplus to new consumers who enter the market when the price falls. c. additional consumer surplus to initial consumers. d. decrease in consumer surplus in the market when the price increases from P1 to P2. ANSWER: b 3 11. Refer to Figure 7-1. When the price rises from P1 to P2, consumer surplus a. decreases by an amount equal to A. b. decreases by an amount equal to B+C. c. increases by an amount equal to B+C. d. increases by an amount equal to C. ANSWER: b Figure 7-2 12. Refer to Figure 7-2. At the equilibrium price, consumer surplus is a. $1800. b. $2400. c. $600. d. $4,800. ANSWER: b 13. Refer to Figure 7-2. If the government imposes a price floor of $110 in this market, then consumer surplus will decrease by a. $2400. b. $600. c. $1800. d. $1200. ANSWER: c 4 14. Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy. ANSWER: a 15. A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market. ANSWER: c 16. Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold. ANSWER: c 5 Figure 7-4 17. Refer to Figure 7-4. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH ANSWER: a 18. Refer to Figure 7-4. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the mar ket? a. BCG b. ACH c. AHGB d. DGH ANSWER: d 6 Figure 7-5 19. Refer to Figure 7-5. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000 ANSWER: c 20. Refer to Figure 7-5. If the supply curve is S', the demand curve is D, and the equilibrium price is $150, what is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000 ANSWER: a 21. Refer to Figure 7-5. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875. ANSWER: b 7 22. Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the change in producer surplus? a. Producer surplus increases by $3,125 b. Producer surplus increases by $5,625 c. Producer surplus decreases by $3,125 d. Producer surplus decreases by $5,625 ANSWER: a 23. Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers? a. $625 b. $2,500 c. $3,125 d. $5,625 ANSWER: b 24. Refer to Figure 7-5. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market? a. $625 b. $2,500 c. $3,125 d. $5,625 ANSWER: a Table 7-11 Price Quantity Demanded Quantity Supplied (Dollars per unit) (Units) (Units) 12.00 0 36 10.00 3 30 8.00 6 24 6.00 9 18 4.00 12 12 2.00 15 6 0.00 18 0 8 25. Refer to Table 7-11. The equilibrium price is a. $10.00. b. $8.00. c. $6.00. d. $4.00. ANSWER: d 26. Refer to Table 7-11. At a price of $2.00, total surplus is a. larger than it would be at the equilibrium price. b. smaller than it would be at the equilibrium price. c. the same as it would be at the equilibrium price. d. There is insufficient information to make this determination. ANSWER: b 27. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. At equilibrium, consumer surplus is a. $24. b. $36. c. $42. d. $48. ANSWER: d 28. Refer to Table 7-12. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is a. $24. b. $32. c. $48. d. $64. ANSWER: a 9 29. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is a. $44. b. $56. c. $72. d. $96. ANSWER: c 30. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, consumer surplus will be a. $21. b. $28. c. $36. d. $42. ANSWER: c 31. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, producer surplus will be a. $16. b. $18. c. $24. d. $26. ANSWER: b 32. Refer to Table 7-11. Both the demand curve and the supply curve are straight lines. If the price is $4 but only 6 units are bought and sold, total surplus will be a. $42. b. $48. c. $54. d. $60. ANSWER: c 10 33. A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it a. maximizes both the total revenue for firms and the quantity supplied of the product. b. maximizes the combined welfare of buyers and sellers. c. minimizes costs and maximizes output. d. minimizes the level of welfare payments. ANSWER: b 34. The distinction between efficiency and equality can be described as follows: a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a given size at the least possible cost. d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie fairly among members of society. ANSWER: d 11