Ch 7 Consumers, Producers, Market Efficiency Multiple Choice Identify 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 called a 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 the a 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 Orange Alex $200 $150 $075 Barb $150 $100 $080 Carlos $075 $025 $0
4 Refer to Table 7-5 If the market price of an orange is $070, the market quantity of oranges demanded per day is a 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 $070 to $140? a Alex b Barb c Carlos d All three individuals experience the same loss of consumer surplus 6 Chad is willing to pay $500 to get his first cup of morning latté He buys a cup from a vendor selling latté for $375 per cup Chad's consumer surplus is a $875 b $500 c $375 d $125 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 is a $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 $1950 Nick must be selling his cakes for a $650 each b $750 each c $950 each d $1050 each Table 7-6 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 9 Refer to Table 7-6 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
300 Price 275 250 225 200 175 150 125 100 75 50 S' S 25 D D' 25 50 75 100 125 150 175 200 Quantity 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
250 225 200 175 150 125 100 75 50 25 Price S 25 50 75 100 125 150 Quantity 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
170 Price 160 150 140 S 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 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
Price Supply P2 P1 A C B G D Q1 Q2 Quantity 15 Refer to Figure 7-11 When the price is P2, producer surplus is a 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 who a 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
Price Quantity Demanded Quantity Supplied $1200 0 12 $1000 4 10 $ 800 8 8 $ 600 12 6 $ 400 16 4 $ 200 20 2 $ 000 24 0 18 Refer to Table 7-9 The equilibrium price is a $1000 b $800 c $600 d $400 19 Refer to Table 7-9 At a price of $400, total surplus is a 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 J Price Supply K N L Demand M R Quantity
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 Price Supply P2 B A P1 C D Demand Q1 Quantity 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 P4 P3 Price A Supply B C P2 D H P1 F G I Demand Q1 Q2 Quantity 23 Refer to Figure 7-16 At equilibrium, total surplus is represented by the area a 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
Price 48 44 A K Supply 40 36 32 F G 28 24 20 H B Demand 16 12 8 4 C 1 2 3 4 5 6 7 8 9 10 11 Quantity 24 Refer to Figure 7-17 At equilibrium, total surplus is measured by the area a ACG b AFG c KBG d CFG 25 Market power refers to the a 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 Efficiency Answer Section MULTIPLE CHOICE 1 ANS: B PTS: 1 DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Willingness to pay MSC: Definitional 2 ANS: A PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Willingness to pay MSC: Definitional 3 ANS: C PTS: 1 DIF: 1 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Definitional 4 ANS: C PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Market demand MSC: Analytical 5 ANS: A PTS: 1 DIF: 3 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 6 ANS: D PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 7 ANS: A PTS: 1 DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus 8 ANS: C PTS: 1 DIF: 3 REF: 7-2 9 ANS: D PTS: 1 DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Opportunity cost MSC: Analytical 10 ANS: C PTS: 1 DIF: 3 REF: 7-2 MSC: Analytical 11 ANS: B PTS: 1 DIF: 3 REF: 7-2 MSC: Analytical
12 ANS: B PTS: 1 DIF: 3 REF: 7-2 MSC: Analytical 13 ANS: A PTS: 1 DIF: 3 REF: 7-2 MSC: Analytical 14 ANS: C PTS: 1 DIF: 3 REF: 7-2 MSC: Analytical 15 ANS: C PTS: 1 DIF: 2 REF: 7-2 16 ANS: C PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive 17 ANS: A PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency MSC: Interpretive 18 ANS: B PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Efficiency 19 ANS: B PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus MSC: Interpretive 20 ANS: D PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus MSC: Interpretive 21 ANS: B PTS: 1 DIF: 2 REF: 7-3 22 ANS: B PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus 23 ANS: C PTS: 1 DIF: 2 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus 24 ANS: A PTS: 1 DIF: 1 REF: 7-3 NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Interpretive 25 ANS: C PTS: 1 DIF: 1 REF: 7-4 NAT: Analytic LOC: Supply and demand TOP: Market power MSC: Definitional