Ch 7 Consumers, Producers, Market Efficiency

Multiple ChoiceIdentify the choice that best completes the statement or answers the question.

____ 1. Suppose Chris and Laura 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 calleda.

deadweight loss.

b.

willingness to pay.

c.

consumer surplus.

d.

producer surplus.

____ 2. Willingness to pay a.

measures the value that a buyer places on a good.

b.

is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.

c.

is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept.

d.

is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

____ 3. Consumer surplus is thea.

amount of a good consumers get without paying anything.

b.

amount a consumer pays minus the amount the consumer is willing to pay.

c.

amount a consumer is willing to pay minus the amount the consumer actually pays.

d.

value of a good to a consumer.

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

First Orange Second Orange Third OrangeAlex $2.00 $1.50 $0.75Barb $1.50 $1.00 $0.80Carlos $0.75 $0.25 $0

____ 4. Refer to Table 7-5. If the market price of an orange is $0.70, the market quantity of oranges demanded per day isa.

5.

b.

6.

c.

7.

d.

9.

____ 5. Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of an orange increases from $0.70 to $1.40?a.

Alex

b.

Barb

c.

Carlos

d.

All three individuals experience the same loss of consumer surplus.

____ 6. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for $3.75 per cup. Chad's consumer surplus isa.

$8.75.

b.

$5.00.

c.

$3.75.

d.

$1.25.

____ 7. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350. Denise's consumer surplus isa.

$150.

b.

$350.

c.

$500.

d.

$850.

____ 8. At Nick's Bakery, the cost to make homemade chocolate cake is $3 per cake. As a result of selling three cakes, Nick experiences a producer surplus in the amount of $19.50. Nick must be selling his cakes fora.

$6.50 each.

b.

$7.50 each.

c.

$9.50 each.

d.

$10.50 each.

Table 7-6The following table represents the costs of five possible sellers.

Seller CostAbby $1,500Bobby $1,200Carlos $1,000Dianne $750Evalina $500

____ 9. Refer to Table 7-6. If the market price is $900, the combined total cost of all participating sellers isa.

$3,700.

b.

$2,700.

c.

$2,250.

d.

$1,250.

Figure 7-8

D

S' S

D'

25 50 75 100 125 150 175 200 Quantity

25

50

75

100

125

150

175

200

225

250

275

300Price

____ 10. Refer to Figure 7-8. 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

____ 11. Refer to Figure 7-8. 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.

Figure 7-9

S

25 50 75 100 125 150 Quantity

25

50

75

100

125

150

175

200

225

250Price

____ 12. Refer to Figure 7-9. If the equilibrium price rises from $50 to $200, what is the additional producer surplus to initial producers?a.

$625

b.

$3,750

c.

$5,625

d.

$10,000

Figure 7-10

S

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

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170Price

____ 13. Refer to Figure 7-10. 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.

____ 14. Refer to Figure 7-10. 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 7-11

Supply

P1

P2

Q1 Q2

A

C

B

D

G

Quantity

Price

____ 15. Refer to Figure 7-11. When the price is P2, producer surplus isa.

A.

b.

A+C.

c.

A+B+C.

d.

D+G.

____ 16. Economists typically measure efficiency using a.

the price paid by buyers.

b.

the quantity supplied by sellers.

c.

total surplus.

d.

profits to firms.

____ 17. At the equilibrium price of a good, the good will be purchased by those buyers whoa.

value the good more than price.

b.

value the good less than price.

c.

have the money to buy the good.

d.

consider the good a necessity.

Table 7-9

PriceQuantity

DemandedQuantitySupplied

$12.00 0 12$10.00 4 10$ 8.00 8 8$ 6.00 12 6$ 4.00 16 4$ 2.00 20 2$ 0.00 24 0

____ 18. Refer to Table 7-9. The equilibrium price isa.

$10.00.

b.

$8.00.

c.

$6.00.

d.

$4.00.

____ 19. Refer to Table 7-9. At a price of $4.00, total surplus isa.

more than it would be at the equilibrium price.

b.

less 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.

Figure 7-13

Demand

J

L

Supply

K N

M R Quantity

Price

____ 20. Refer to Figure 7-13. For quantities greater than M, the value to the marginal buyer is a.

greater than the cost to the marginal seller, so increasing the quantity increases total surplus.

b.

less than the cost to the marginal seller, so increasing the quantity increases total surplus.

c.

greater than the cost to the marginal seller, so decreasing the quantity increases total surplus.

d.

less than the cost to the marginal seller, so decreasing the quantity increases total surplus.

Figure 7-14

Supply

Demand

Q1

P2

P1

A

B

C

D

Quantity

Price

____ 21. Refer to Figure 7-14. When the price is P1, area C represents a.

total benefit.

b.

producer surplus.

c.

consumer surplus.

d.

None of the above is correct.

____ 22. Refer to Figure 7-14. Which area represents total surplus in the market when the price is P1?a.

A+B

b.

B+C

c.

C+D

d A+B+C+D

.

Figure 7-16

Demand

Supply

Q2Q1

P1

P2

P3

A

B

D

F

G

C

H

I

P4

Quantity

Price

____ 23. Refer to Figure 7-16. At equilibrium, total surplus is represented by the areaa.

A+B+C.

b.

A+B+D+F.

c.

A+B+C+D+H+F.

d.

A+B+C+D+H+F+G+I.

Figure 7-17

A

B

C

K

Demand

Supply

FG

H

1 2 3 4 5 6 7 8 9 10 11 Quantity

4

8

12

16

20

24

28

32

36

40

44

48

Price

____ 24. Refer to Figure 7-17. At equilibrium, total surplus is measured by the areaa.

ACG.

b.

AFG.

c.

KBG.

d.

CFG.

____ 25. Market power refers to thea.

side effects that may occur in a market.

b.

government regulations imposed on the sellers in a market.

c.

ability of market participants to influence price.

d.

forces of supply and demand in determining equilibrium price.

Ch 7 Consumers, Producers, Market EfficiencyAnswer Section

MULTIPLE CHOICE

1. ANS: B PTS: 1 DIF: 1 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Willingness to payMSC: Definitional

2. ANS: A PTS: 1 DIF: 2 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Willingness to payMSC: Definitional

3. ANS: C PTS: 1 DIF: 1 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Consumer surplusMSC: Definitional

4. ANS: C PTS: 1 DIF: 2 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Market demandMSC: Analytical

5. ANS: A PTS: 1 DIF: 3 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Consumer surplusMSC: Applicative

6. ANS: D PTS: 1 DIF: 2 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Consumer surplusMSC: Applicative

7. ANS: A PTS: 1 DIF: 2 REF: 7-1NAT: Analytic LOC: Supply and demand TOP: Consumer surplusMSC: Applicative

8. ANS: C PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Applicative

9. ANS: D PTS: 1 DIF: 2 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Opportunity costMSC: Analytical

10. ANS: C PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Analytical

11. ANS: B PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Analytical

12. ANS: B PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Analytical

13. ANS: A PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Analytical

14. ANS: C PTS: 1 DIF: 3 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Analytical

15. ANS: C PTS: 1 DIF: 2 REF: 7-2NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Applicative

16. ANS: C PTS: 1 DIF: 1 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Consumer surplusMSC: Interpretive

17. ANS: A PTS: 1 DIF: 1 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: EfficiencyMSC: Interpretive

18. ANS: B PTS: 1 DIF: 1 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: EfficiencyMSC: Applicative

19. ANS: B PTS: 1 DIF: 2 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Total surplusMSC: Interpretive

20. ANS: D PTS: 1 DIF: 2 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Total surplusMSC: Interpretive

21. ANS: B PTS: 1 DIF: 2 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Producer surplusMSC: Applicative

22. ANS: B PTS: 1 DIF: 2 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Total surplusMSC: Applicative

23. ANS: C PTS: 1 DIF: 2 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Total surplusMSC: Applicative

24. ANS: A PTS: 1 DIF: 1 REF: 7-3NAT: Analytic LOC: Supply and demand TOP: Total surplus

MSC: Interpretive

25. ANS: C PTS: 1 DIF: 1 REF: 7-4NAT: Analytic LOC: Supply and demand TOP: Market powerMSC: Definitional