Deck 6: Market Efficiency and Government Intervention

Question 1

Tom would be willing to pay a maximum of $2,500 to attend the Super Bowl this year,and he can buy a ticket for $2,050.His consumer surplus is

A) $25.
B) $50.
C) $275.
D) $450.

Answer 1

$450.

Question 2

Consumer surplus is equal to

A) the area under the demand curve.
B) the area under the demand curve above the good's price.
C) the area under the demand curve below the good's price.
D) the good's price times the quantity purchased.

Answer 2

the area under the demand curve above the good's price.

Question 3

You would be willing to pay a maximum of $1,000 for an airplane ticket to London during the summer,and you can buy an airplane ticket for $890.Your consumer surplus is

A) $90.
B) $100.
C) $110.
D) $190.

Answer 3

$110.

Question 4

Figure 6.1

Refer to Figure 6.1.If the price of a donut is $ 0.75,consumer surplus is

A) $1.75.
B) $1.50.
C) $0.75.
D) $0.50.

Question 5

Figure 6.2

Refer to Figure 6.2.If the price of a DVD rental is $2.00,consumer surplus will be $________ each week.

A) 2.00
B) 4.00
C) 6.00
D) 12.00

Question 6

Figure 6.1

Refer to Figure 6.1.If the price of a donut is $1.25,consumer surplus is

A) $1.75.
B) $1.25.
C) $0.75.
D) $0.50.

Question 7

Figure 6.3

Refer to Figure 6.3.If the price of one hour of tutoring is $30,then producer surplus is

A) $40.
B) $30.
C) $20.
D) $10.

Question 8

Suppose you receive a consumer surplus of $50.The $50 represents

A) a monetary payment from the store.
B) a monetary payment from the government.
C) a reduction in the original price of the good.
D) the fact that you paid $50 less than you were willing to pay for the good.

Question 9

Assume that Crystal's demand for handbags remains constant,but the price of handbags increases.Crystal's consumer surplus

A) decreases.
B) increases.
C) remains constant.
D) may increase or decrease depending on the amount of the price decrease.

Question 10

Figure 6.1

Refer to Figure 6.1.If the price of a donut is $ 0.25,consumer surplus is

A) $3.50.
B) $3.00.
C) $1.50.
D) $0.

Question 11

Figure 6.3

Refer to Figure 6.3.If the price of one hour of tutoring falls from $30 to $20,then producer surplus will

A) increase.
B) decrease.
C) not change.
D) cease to exist.

Question 12

The difference between the maximum amount a person is willing to pay for a good and its current market price is known as

A) the paradox of value.
B) profits.
C) revealed preferences.
D) consumer surplus.

Question 13

Consumer surplus can be defined as the

A) value a consumer receives from a good minus the price paid for that good.
B) maximum amount the consumer would pay for a good.
C) actual amount paid for a good minus the benefit of using that good.
D) marginal utility of a good divided by its price.

Question 14

Producer surplus is equal to

A) the area under the supply curve.
B) the area above the supply curve below the good's price.
C) the area under the supply curve below the good's price.
D) the good's price times the quantity purchased.

Question 15

Jody's bakery makes cakes and would be willing to sell each cake for $12.50.If Jody's bakery sells 10 cakes for $13 each,the total producer surplus for Jody's bakery would be equal to

A) $5.00.
B) $12.50.
C) $125.00.
D) $130.00.

Question 16

Figure 6.2

Refer to Figure 6.2.If the price of a DVD rental is $6.00,consumer surplus will be $________ each week.

A) 2.00
B) 4.00
C) 6.00
D) 12.00

Question 17

Figure 6.2

Refer to Figure 6.2.If the price of a DVD rental is $4.00,consumer surplus will be $________ each week.

A) 2.00
B) 4.00
C) 6.00
D) 12.00

Question 18

Figure 6.3

Refer to Figure 6.3.If the price of one hour of tutoring is $20,then producer surplus is

A) $40.
B) $30.
C) $20.
D) $10.

Question 19

Mary has an old house built in 1950 that she would be willing to sell for $100,000.If someone offers to buy her house for $110,000,Mary's producer surplus would be equal to

A) $5,000.
B) $10,000.
C) $55,000.
D) $100,000.

Question 20

Laura makes hand-made jewelry and she would be willing to sell pairs of earrings for $50.If Laura sells each pair of earrings for $65,her producer surplus per pair of earrings sold would be equal to

A) $115.
B) $65.
C) $50.
D) $15.

Question 21

Martha was willing to pay $200 for a new winter coat,but the current market price of coats is $150.Calculate Martha's consumer surplus.What happens to consumer surplus if the price of a coat rises to $175?

Question 22

What is consumer surplus?

Question 23

Consumer surplus is the difference between the price that a buyer pays and the price a seller requires.

Question 24

A seller's willingness to accept is the minimum amount he is willing to accept as payment for a product,and is equal to the marginal cost of production.

Question 25

A supply curve reflects buyers' willingness to pay.

Question 26

Figure 6.5 shows the market for bananas.Shade in the area of consumer surplus.Use the information provided to calculate consumer surplus.

Question 27

Recall the Application about Japanese and American consumers' willingness to pay for Internet service to answer the following question(s). In the United States, the average willingness to pay for Internet service is $85 per month, and the average monthly price of Internet service is $40 per month.
According to the Application,the average consumer surplus in Japan from Internet service is about ________ percent of the price.

A) 11
B) 40
C) 85
D) 162

Question 28

What is consumer surplus?

Question 29

Jerry has a guitar that he is willing to sell for $150.If someone offers him $175,his producer surplus is $25.

Question 30

Assume that linen pants are a normal good and consumer income rises.If the supply of linen pants remains constant,producer surplus

A) will decrease.
B) will increase.
C) will remain constant.
D) may increase or decrease depending on the amount of the price increase.

Question 31

Assuming that the demand for a product is stable,an increase in price will lead to an increase in consumer surplus.

Question 32

Marty has a collection of beer cans that he is willing to sell for $850.Someone offers him $1,000 for his collection.Calculate Marty's producer surplus.What happens to Marty's producer surplus if someone offers him $1,200 instead?

Question 33

Assume that the supply of smartphones remains constant,but the price of smartphones increases.Producer surplus

A) will decrease.
B) will increase.
C) will remain constant.
D) may increase or decrease depending on the amount of the price increase.

Question 34

At the free market equilibrium,the efficient level of output is produced because

A) government regulates the output level that must be produced.
B) firms are maximizing profit.
C) willingness to pay is the same for all consumers.
D) total surplus is maximized.

Question 35

Suppose that you are willing to pay $25 for a new shirt and the market price is $35.In this case

A) you will not buy the good.
B) you will buy the good and receive a consumer surplus of $5.
C) you will buy the good and receive a consumer surplus of -$10.
D) you will buy the good and receive a consumer surplus of -$35.

Question 36

Assume that production costs rise and demand remains constant.The equilibrium price will ________ and the producer surplus will ________.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question 37

If Jaime is willing to pay $8 for a movie ticket and the theater charges her only $4 for 2 movie tickets,her consumer surplus for each movie ticket is equal to $4.

Question 38

Figure 6.4 shows the market for new cars.Show the area of consumer surplus at the market equilibrium.

Question 39

Recall the Application about Japanese and American consumers' willingness to pay for Internet service to answer the following question(s). In the United States, the average willingness to pay for Internet service is $85 per month, and the average monthly price of Internet service is $40 per month.
According to the Application,as a percentage of the price,consumer surplus from Internet service is

A) lower in Japan than in the Unites States.
B) lower in the United States than in Japan.
C) about the same in both the United States and Japan.
D) positive in Japan and negative in the United States.

Question 40

Assuming that the supply for a product is stable,an increase in price will lead to an increase in producer surplus.

Question 41

6.3 Controlling Prices-Maximum and Minimum Prices

Figure 6.6
Refer to Figure 6.6.Suppose that the equilibrium quantity is 100.Consumer surplus is equal to

A) $200.
B) $10,000.
C) $20,000.
D) $30,000.

Question 42

6.3 Controlling Prices-Maximum and Minimum Prices

Figure 6.6
Refer to Figure 6.6.If the government will not allow landlords to charge more than $400 for an apartment,which of the following will happen?

A) Demand must eventually decrease so that the market will come into equilibrium at a price of $400.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $400.
C) There will be an excess demand for apartments.
D) The market will be in equilibrium at a price of $400.

Question 43

Market equilibrium maximizes the total surplus in a market and therefore it is efficient.

Question 44

A maximum price below the market equilibrium price will lower the total surplus of the market.

Question 45

In an efficient market where buyers and sellers act in their own self-interest,Adam Smith's invisible hand is in action.

Question 46

Why is the market equilibrium efficient?

Question 47

If the equilibrium price of gasoline is $2.75 per gallon and the government will not allow oil companies to charge more than $2.00 per gallon of gasoline,which of the following will happen?

A) Demand must eventually decrease so that the market will come into equilibrium at a price of $2.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $2.00.
C) Total surplus in the market will be lower than it would be if the price was $2.75 per gallon.
D) The market will be in equilibrium at a price of $2.00.

Question 48

If the market price of salmon is $8.99 per pound but the government will not allow salmon farmers to charge more than $4.99 per pound of salmon,which of the following will happen?

A) The supply curve for salmon will shift to the left.
B) There will be an excess demand for salmon.
C) There will be an excess supply of salmon.
D) The market will be in equilibrium at a price of $4.99.

Question 49

Market equilibrium guarantees that all mutually beneficial transactions take place.

Question 50

Recall the Application about the mismatch of rent-controlled apartments and their tenants to answer the following question(s).
Recall the Application.Under rent control,the government sets a maximum price for housing,decreasing the quantity supplied and the total value of the market.Rent control and other maximum prices cause ________ and possibly ________.

A) inefficiency; mismatches.
B) efficiency; mismatches
C) mismatches; equilibrium
D) none of the above

Question 51

Recall the Application about the mismatch of rent-controlled apartments and their tenants to answer the following question(s).
Recall the Application.The elimination of rent control would most likely ________ the quantity of apartments supplied and ________ the total value of the apartment market.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 52

If the government sets a maximum price for gasoline above the equilibrium price,

A) quantity demanded of gasoline will be equal to quantity supplied of gasoline.
B) there will be excess demand for gasoline.
C) there will be excess supply for gasoline.
D) demand for gasoline will be less than supply for gasoline.

Question 53

6.3 Controlling Prices-Maximum and Minimum Prices

Figure 6.6
Refer to Figure 6.6.Suppose that landlords could not charge the market equilibrium price of $500,but instead could charge no more than $400.As a result,the quantity of apartments rented will fall from 100 to 50.In this case consumer surplus will

A) decrease.
B) increase.
C) stay the same.
D) It is impossible to say.

Question 54

6.3 Controlling Prices-Maximum and Minimum Prices

Figure 6.6
Refer to Figure 6.6.If the government will not allow landlords to charge more than $400 for an apartment,the deadweight loss will be equal to

A) $2,000.
B) $2,500.
C) $5,000.
D) $7,500.

Question 55

At the market equilibrium,resources are allocated efficiently because

A) the marginal cost of producing another unit is equal to zero.
B) the price buyers pay accurately reflects the marginal cost of the resources used to produce the good.
C) the price buyers pay is greater than sellers' willingness to sell.
D) all of the above

Question 56

If the government imposes a maximum price for milk that is above the equilibrium price,

A) this maximum price for milk will have no economic impact.
B) quantity demanded of milk will be less than quantity supplied.
C) demand for milk will be greater than supply.
D) the available milk supply will have to be rationed.

Question 57

The conclusion that the level of output is efficient at the market equilibrium rests on all of the following assumptions EXCEPT that

A) buyers and sellers are well-informed.
B) there are no external costs or benefits.
C) the government regulates price and output.
D) the market is perfectly competitive.

Question 58

Suppose that the market equilibrium price of TVs is $250,but manufacturers are not allowed to charge more than $200 due to a government regulation.Which of the following would be a definite result of imposing a maximum price?

A) Consumer surplus will increase.
B) Producer surplus will decrease.
C) Government revenue will increase.
D) all of the above

Question 59

Suppose that the government sets a maximum price for insulin below the equilibrium price.In this situation,

A) there will be an efficient level of insulin produced.
B) there will be excess supply of insulin.
C) total surplus will be lower than it would be at the market equilibrium price.
D) total surplus will be greater than it would be at the market equilibrium price.

Question 60

Comment on the following statement: "Individual consumers and producers acting in their own self-interest will lead a perfectly competitive market to the efficient level of output."

Question 61

Recall the Application about price controls on candy bars during World War II to answer the following question(s).
Recall the Application.During World War II,the U.S.government imposed price controls to set maximum prices on many products,including candy bars.How did candy bar producers respond to these maximum prices?

A) Producers increased the supply of candy bars.
B) Producers shrank the weight of the candy bars.
C) Many of the producers dropped out of the candy bar market.
D) none of the above

Question 62

Suppose that the equilibrium price of a bushel of corn is $0.75 per bushel.The government decides to place a minimum price on corn and will not allow sellers to charge less than $0.90 per bushel.Illustrate this situation using a graph.Make sure that you show the original equilibrium and the effect of the minimum price on the market.What will happen in this market? What will happen to total surplus?

Question 63

Assume that there is rent control in Chicago.Which of the following is true?

A) All consumers in the rental market will benefit because the rent will be lower.
B) The total surplus will fall because there will be a shortage of apartments.
C) The total surplus will rise because consumer surplus will increase.
D) Consumer surplus will increase and as a result all consumers in the rental market will benefit.

Question 64

Suppose that the equilibrium rent for a two-bedroom apartment in downtown Chicago is $900 per month.The city council decides to place a maximum price on apartment rents and will not allow landlords to charge more than $700 per month.Illustrate this situation using a graph.Make sure that you show the original equilibrium and the effect of the maximum price on the market.What will happen in this market? What will happen to total surplus?

Question 65

Figure 6.7 shows the supply and demand curves for human kidneys.Because the government does not allow a person to sell a kidney,

A) 50 kidneys are donated.
B) 30 kidneys are donated.
C) 20 kidneys are donated.
D) 0 kidneys are donated.

Question 66

If the government sets a minimum price above the equilibrium price for soybeans,which of the following statements will be correct?

A) There will be an efficient level of output produced.
B) There will be excess supply.
C) There will be excess demand.
D) all of the above

Question 67

Figure 6.7 shows the supply and demand curves for human kidneys.If the government allowed the market to seek equilibrium,then

A) 50 kidneys are donated.
B) 30 kidneys are donated.
C) 20 kidneys are donated.
D) 0 kidneys are donated.

Question 68

In the market equilibrium,with a price of $500 there are 2,000 apartments.If the government decides to enact a rent control policy,with a maximum price of $400,it reduces the quantity to 1,500 apartments.Due to the rent control decreasing the total surplus of the market,the policy generates a(n)

A) excess supply.
B) equilibrium.
C) higher price.
D) deadweight loss.

Question 69

Suppose that the equilibrium price of a gallon of gas is $1.20 per gallon.The government decides to place a maximum price on gasoline and will not allow sellers to charge more than $1.40 per gallon.Illustrate this situation using a graph.Make sure that you show the original equilibrium and the effect of the maximum price on the market.What will happen in this market? What will happen to total surplus?

Question 70

A minimum price set below the market equilibrium will lead to excess supply and to a drop in the total surplus of the market.

Question 71

Rent control reduces market efficiency if the maximum rents allowable are below the market equilibrium price.

Question 72

Figure 6.8 shows the market for taxicab services in a small town.If the government limits taxicab services to 20 per day,then the deadweight loss is equal to

A) $3.75.
B) $7.50.
C) $15.00.
D) $20.00.

Question 73

Figure 6.7 shows the supply and demand curves for human kidneys.If the government set the price of a kidney at $5,000,then

A) 5,000 kidneys would be purchased.
B) 300 kidneys would be purchased.
C) 50 kidneys would be purchased.
D) 0 kidneys would be purchased.

Question 74

Table 6.1

Table 6.1 indicates the demand and supply schedules for oil in the United States.Suppose also that the world price of oil is $75 per barrel and that the United States can buy all the oil it wants at that price.Which of the following statements about the impact of a law banning all oil imports is true?

A) Consumers would pay a lower price for oil than they would under free trade.
B) Domestic producers benefit from the law because they can charge a higher price and sell more.
C) Total surplus in the oil market rises.
D) Consumer surplus increases.

Question 75

Suppose the government sets a minimum price below the market equilibrium price.This will have no economic impact on the market.

Question 76

Figure 6.8 shows the market for taxicab services in a small town.If there is no government intervention and the supply of taxicab services reflects the law of supply,the price per mile traveled will be

A) $1.00.
B) $1.50.
C) $2.00.
D) It is impossible to determine.

Question 77

Rent controls are always efficient in helping the poor but they negatively impact the wealthy.

Question 78

A maximum price below the market equilibrium price will raise the total surplus of the market.

Question 79

Figure 6.8 shows the market for taxicab services in a small town.If the government limits taxicab services to 20 per day,then producer surplus will

A) increase by $10.00.
B) increase by $6.25.
C) decrease by $3.75.
D) increase by $20.00.

Question 80

Figure 6.8 shows the market for taxicab services in a small town.If the government limits taxicab services to 20 per day,the price per mile traveled will be

A) $1.00.
B) $1.50.
C) $2.00.
D) It is impossible to determine.