Deck 7: Consumers, Producers, and the Efficiency of Markets

Question 1

A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would refuse to buy a product at a price less than his willingness to pay.

Answer 1

False

Question 2

Welfare economics is the study of the welfare system.

Answer 2

False

Question 3

Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.

Answer 3

False

Question 4

Consumer surplus measures the benefit to buyers of participating in a market.

Question 5

All else equal, an increase in supply will cause an increase in consumer surplus.

Question 6

If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10.

Question 7

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

Question 8

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it.

Question 9

The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.

Question 10

If the government imposes a binding price floor in a market, then the consumer surplus in that market will decrease.

Question 11

If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.

Question 12

If the government imposes a binding price floor in a market, then the consumer surplus in that market will increase.

Question 13

Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually has to pay for it.

Question 14

Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.

Question 15

Suppose there is an increase in supply that reduces market price. Consumer surplus increases because (1) consumer surplus received by existing buyers increases and (2) new buyers enter the market.

Question 16

For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

Question 17

Consumer surplus can be measured as the area between the demand curve and the supply curve.

Question 18

The lower the price, the lower the consumer surplus, all else equal.

Question 19

All else equal, an increase in demand will always increase consumer surplus.

Question 20

If Rosa is willing to pay $450 for hockey tickets and has consumer surplus of $175, the price of the tickets is $625.

Question 21

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window-cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $200.

Question 22

All else equal, an increase in demand will cause an increase in producer surplus.

Question 23

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35.

Question 24

All else equal, a decrease in demand will cause an increase in producer surplus.

Question 25

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

Question 26

At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.

Question 27

The lower the price, the lower the producer surplus, all else equal.

Question 28

The area below the demand curve and above the supply curve measures the producer surplus in a market.

Question 29

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

Question 30

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window-cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $100.

Question 31

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

Question 32

The area below the price and above the supply curve measures the producer surplus in a market.

Question 33

Producer surplus is the cost of production minus the amount a seller is paid.

Question 34

An increase in price increases consumer surplus.

Question 35

Producer surplus measures the benefit to sellers from receiving a price above their costs.

Question 36

When demand increases so that market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

Question 37

If the government imposes a binding price ceiling in a market, then the producer surplus in that market will increase.

Question 38

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Question 39

Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product.

Question 40

Producer surplus is the amount a seller is paid minus the cost of production.

Question 41

The cost of production plus producer surplus is the price a seller is paid.

Question 42

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.

Question 43

If the United States legally allowed for a market in transplant organs, it is estimated that one kidney would sell for at least $100,000.

Question 44

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is . If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.

Question 45

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

Question 46

Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs to society of this activity outweigh the benefits.

Question 47

Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is $40 for this transaction, then the total surplus would be $15.

Question 48

Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.

Question 49

Total surplus in a market is consumer surplus minus producer surplus.

Question 50

Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The total surplus is $200.

Question 51

Ticket scalping can increase total surplus in the market for tickets to sporting events.

Question 52

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

Question 53

Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs.

Question 54

Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.

Question 55

The current policy on kidney donation effectively sets a price ceiling of zero.

Question 56

Total surplus = Value to buyers - Costs to sellers.

Question 57

Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the demand for goods to the sellers who can produce them at least cost.

Question 58

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium.

Question 59

If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good.

Question 60

Producing a soccer ball costs Jake $5. He sells it to Darby for $35. Darby values the soccer ball at $50. For this transaction, the total surplus in the market is $40.

Question 61

Market failure is the inability of

A)buyers to interact harmoniously with sellers in the market.
B)a market to establish an equilibrium price.
C)buyers to place a value on the good or service.
D)some unregulated markets to allocate resources efficiently.

Question 62

When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

Question 63

Which of the following statements is not correct?

A)An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.
B)Market power can cause markets to be inefficient.
C)Externalities can cause markets to be inefficient.
D)The invisible hand can remedy all types of market failures.

Question 64

Producer surplus equals the

A)value to buyers minus the amount paid by buyers.
B)value to buyers minus the cost to sellers.
C)amount received by sellers minus the cost to sellers.
D)amount received by sellers minus the amount paid by buyers.

Question 65

Total surplus

A)can be used to measure a market's efficiency.
B)is the sum of consumer and producer surplus.
C)is the value to buyers minus the cost to sellers.
D)All of the above are correct.

Question 66

Consumer surplus equals the

A)value to buyers minus the amount paid by buyers.
B)value to buyers minus the cost to sellers.
C)amount received by sellers minus the cost to sellers.
D)amount received by sellers minus the amount paid by buyers.

Question 67

Market power and externalities are examples of

A)laissez-faire economics.
B)public policy.
C)market failure.
D)welfare economics.

Question 68

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.

Question 69

In order to conclude that markets are efficient, we assume that they are perfectly competitive.

Question 70

Externalities are

A)side effects passed on to a party other than the buyers and sellers in the market.
B)side effects of government intervention in markets.
C)external forces that cause the price of a good to be higher than it otherwise would be.
D)external forces that help establish equilibrium price.

Question 71

The decisions of buyers and sellers that affect people who are not participants in the market create

A)market power.
B)externalities.
C)profiteering.
D)market equilibrium.

Question 72

Market power and externalities are examples of market failures.

Question 73

Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

Question 74

The consumption of water by local residents that may include pesticide runoff from local farmers' fields is an example of

A)market equilibrium.
B)market power.
C)externalities.
D)laissez-faire.

Question 75

Which of the following is not correct?

A)Market power can cause markets to be inefficient.
B)When the decisions of buyers and sellers affect nonparticipants, markets may be inefficient.
C)The tools of welfare economics cannot help economists when markets are inefficient.
D)Externalities can cause markets to be inefficient.

Question 76

Economists typically measure efficiency using

A)the price paid by buyers.
B)the quantity supplied by sellers.
C)total surplus.
D)profits to firms.

Question 77

Inefficiency can be caused in a market by the presence of

A)market power.
B)externalities.
C)imperfectly competitive markets.
D)All of the above are correct.

Question 78

When markets fail, public policy can

A)do nothing to improve the situation.
B)potentially remedy the problem and increase economic efficiency.
C)always remedy the problem and increase economic efficiency.
D)in theory, remedy the problem, but in practice, public policy has proven to be ineffective.

Question 79

Markets will always allocate resources efficiently.

Question 80

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

A)profits and costs to firms
B)consumer and producer surplus
C)the equilibrium price and quantity
D)incomes of and prices paid by buyers