Practice Questions (Consumers, Producers, and the Efficiency of Markets) Test

Practice Questions Consumers, Producers, and the Efficiency of Markets Figure 7-1 350 P 300 250 200 150 100 Demand 50 1 2 3 4 5 Q 1. Refer to Figure 7-1. If the price of the good is $250, then consumer surplus amounts to a. $50. b. $100. c. $150. d. $200. 2. Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to a. $150. b. $200. c. $250. d. $300. 3. Refer to Figure 7-1. If the price of the good is $50, then consumer surplus amounts to a. $400. b. $500. c. $600. d. $750. 4. Refer to Figure 7-1. If the price of the good is $200, then a. consumer surplus is $150. b. consumer surplus is $650. c. producer surplus is $650. d. producer surplus is $750. Figure 7-5 Price 170 160 Supply 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Demand 2 4 5 6 8 10 12 14 16 18 20 22 25 24 26 28 Quantity 5. Refer to Figure 7-5. At the equilibrium price, consumer surplus is a. $200. b. $300. c. $500. d. $600. 6. Refer to Figure 7-5. If the government imposes a price floor of $120 in this market, then consumer surplus will decrease by a. $75. b. $125. c. $225. d. $300. Figure 7-6 Price 250 225 200 175 150 125 100 75 50 25 Demand 25 50 75 100 125 150 Quan tity 7. Refer to Figure 7-6. What is the consumer surplus if the price is $100? a. $2,500 b. $5,000 c. $10,000 d. $20,000 8. Refer to Figure 7-6. What happens to the consumer surplus if the price rises from $100 to $150? a. The new consumer surplus is half of the original consumer surplus. b. The new consumer surplus is 25 percent of the original consumer surplus. c. The new consumer surplus is double the original consumer surplus. d. The new consumer surplus is triple the original consumer surplus. 9. When the supply of a good increases and the demand for the good remains unchanged, consumer surplus a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged. 10. Which of the following is true when the price of a good or service rises? a. Buyers who were already buying the good or service are better off. b. Some buyers exit the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same. 11. Motor oil and gasoline are complements. If the price of motor oil decreases, consumer surplus in the gasoline market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged. 12. What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income? a. Consumer surplus decreases. b. Consumer surplus remains unchanged. c. Consumer surplus increases. d. Consumer surplus may increase, decrease, or remain unchanged. 13. As a result of a decrease in price, a. new buyers enter the market, increasing consumer surplus. b. new buyers enter the market, decreasing consumer surplus. c. existing buyers exit the market, increasing consumer surplus. d. existing buyers exit the market, decreasing consumer surplus. 14. A seller’s opportunity cost measures the a. value of everything she must give up to produce a good. b. amount she is paid for a good minus her cost of providing it. c. consumer surplus. d. out of pocket expenses to produce a good but not the value of her time. 15. Justin builds fences for a living. Justin’s out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his a. producer surplus. b. producer deficit. c. cost of building fences. d. profit. 16. 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. 17. A seller is willing to sell a product only if the seller receives a price that is at least as great as the a. seller’s producer surplus. b. seller’s cost of production. c. seller’s profit. d. average willingness to pay of buyers of the product. 18. 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. 19. Producer surplus measures the a. benefits to sellers of participating in a market. b. costs to sellers of participating in a market. c. price that buyers are willing to pay for sellers’ output of a good or service. d. benefit to sellers of producing a greater quantity of a good or service than buyers demand. 20. A seller’s willingness to sell is a. measured by the seller’s cost of production. b. related to her supply curve, just as a buyer’s willingness to buy is related to his demand curve. c. less than the price received if producer surplus is a positive number. d. All of the above are correct. 21. Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.95. b. $1.15. c. $1.30. d. $1.85. 22. Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155 per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in deciding how many pianos to tune. His producer surplus is a. $95. b. $80. c. $75. d. $60. 23. 12. $135 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is a. $-15. b. $20. c. $30. d. $75. Table 7-7 The following table represents the costs of five possible sellers. Seller Cost Abby $1,500 Bobby $1,200 Carlos $1,000 Dianne $750 Evalina $500 24. Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is a. $700. b. $750. c. $2,250. d. $3,700. 25. Refer to Table 7-7. If the market price is $900, the producer surplus in the market is a. $350. b. $550. c. $750. d. $1,000. 26. Refer to Table 7-7. If the market price is $1,100, the combined total cost of all participating sellers is a. $3,700. b. $2,700. c. $2,250. d. $1,250. 27. Refer to Table 7-7. If the market price is $900, the combined total cost of all participating sellers is a. $3,700. b. $2,700. c. $2,250. d. $1,250. Figure 7-8 Price Supply P2 P1 A B D H G C Q1 Q2 Quantity 28. Refer to Figure 7-8. Which area represents producer surplus when the price is P1? a. BCG b. ACH c. ABGD d. DGH 29. Refer to Figure 7-8. Which area represents producer surplus when the price is P2? a. BCG b. ACH c. ABGD d. AHGB 30. Refer to Figure 7-8. Which area represents the increase in producer surplus when the price rises from P1 to P2? a. BCG b. ACH c. ABGD d. AHGB 31. Refer to Figure 7-8. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? a. BCG b. ACH c. DGH d. ABGD Figure 7-9 300 Price 275 250 S' S 225 200 175 150 125 100 75 50 25 D 25 50 D' 75 100 125 150 175 200 Qua nt ity 32. Refer to Figure 7-9. 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 33. Refer to Figure 7-9. 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 34. Refer to Figure 7-9. If the demand curve is D and the supply curve shifts from S’ to S, what is the change in producer surplus? a. b. c. d. Producer surplus increases by $625. Producer surplus increases by $1,875. Producer surplus decreases by $625. Producer surplus decreases by $1,875. 35. Refer to Figure 7-9. 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. 36. Refer to Figure 7-9. 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 37. Refer to Figure 7-9. 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 Figure 7-11 Price 170 160 S 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity 38. Refer to Figure 7-11. At the equilibrium price, producer surplus is a. $200. b. $400. c. $450. d. $900. 39. Refer to Figure 7-11. If the government imposes a price ceiling of $70 in this market, then the new producer surplus will be a. $50. b. $100. c. $175. d. $350. 40. Refer to Figure 7-11. If the government imposes a price ceiling of $70 in this market, then producer surplus will decrease by a. $50. b. $125. c. $150. d. $200. Figure 7-12 Price Supply P2 B A P1 C G D Q1 Q2 Quantity 41. Refer to Figure 7-12. When the price is P2, producer surplus is a. A. b. A+C. c. A+B+C. d. D+G. 42. Refer to Figure 7-12. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be a. b. c. d. lower than P1. P1. between P1 and P2. higher than P2. 43. Refer to Figure 7-12. When the price is P1, producer surplus is a. A. b. C. c. A+B. d. C+D. 44. Refer to Figure 7-12. When the price falls from P2 to P1, producer surplus a. decreases by an amount equal to C. b. decreases by an amount equal to A+B. c. decreases by an amount equal to A+C. d. increases by an amount equal to A+B. 45. Refer to Figure 7-12. When the price rises from P1 to P2, what area represents the increase in producer surplus? a. A b. A+B c. A+B+C d. G 46. Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers? a. A b. A+B c. A+B+C d. G 47. Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market? a. A b. B c. A+B d. G 48. Refer to Figure 7-12. Area A represents a. producer surplus to new producers entering the market as the result of an increase in price from P1 to P2. b. the increase in consumer surplus that results from an upward-sloping supply curve. c. the increase in total surplus when sellers are willing and able to increase supply from Q1 to Q2. d. the increase in producer surplus to those producers already in the market when the price increases from P1 to P2. 49. Refer to Figure 7-12. Area B represents a. the combined profits of all producers when the price is P2. b. the increase in producer surplus to all producers as the result of an increase in the price from P1 to P2. c. producer surplus to new producers entering the market as the result of an increase in the price from P1 to P2. d. that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P1 to P2. 50. Refer to Figure 7-12. When the price falls from P2 to P1, which of the following would not be true? a. The sellers who still sell the good are worse off because they now receive less. b. Some sellers leave the market because they are not willing to sell the good at the lower price. c. The total cost of what is now sold by sellers is actually higher than it was before the decrease in the price.