Deck 4: Economic Efficiency, Government Price Setting, and Taxes

Question 1

Which of the following statements best describes the concept of consumer surplus?

A)"I paid $89 for a microwave oven last week.This week the same store is selling the same microwave oven for $69."
B)"I sold my hard copy of Harry Potter and the Half-Blood Prince to a used book store for $10 even though I was willing to sell it for $5."
C)"Target was having a sale on tube socks so I bought 5 pairs."
D)"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."

Answer 1

"I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up paying only $140 for the same sunglasses."

Question 2

Brett buys a new cell phone for $100.He receives consumer surplus of $80 from the purchase.How much does Brett value his cell phone?

A)$180
B)$100
C)$80
D)$20

Answer 2

$180

Question 3

Table 4-2

Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one of the tickets is $20

A)everyone will buy a ticket except for Zachary.
B)only Violet and Walter will buy tickets.
C)Xavier's consumer surplus is $50.
D)the total consumer surplus from the purchase of tickets will be $122.

Answer 3

everyone will buy a ticket except for Zachary.

Question 4

In Venezuela,the government attempted to control rising food prices by implementing price ceilings in the market.These price ceilings were set ________ the market prices,which resulted in ________ of food.

A)above; surpluses
B)above; shortages
C)below; surpluses
D)below; shortages

Question 5

The difference between the ________ for a good and the ________ is called consumer surplus.

A)highest price a consumer is willing to pay; lowest price a consumer is willing to pay
B)lowest price a consumer is willing to pay; price the consumer actually pays
C)highest price a consumer is willing to pay; price the consumer actually pays
D)price the consumer actually pays; actual cost to the producer

Question 6

Juanita goes to the Hardware Emporium to buy a new circular saw.She is willing to pay $120 for a new saw,but buys one on sale for $85.Juanita's consumer surplus from the purchase is

A)$35.
B)$85.
C)$120.
D)$205.

Question 7

Table 4-2

Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket rises from $20 to $38

A)only three tickets will be sold.
B)consumer surplus decreases from $62 to $12.
C)consumer surplus increases from $88 to $142.
D)no one will buy a ticket.

Question 8

Table 4-2

Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one of the tickets is $36

A)Violet and Walter will each buy two tickets.
B)Walter will receive $4 of consumer surplus from buying one ticket.
C)Violet and Walter receive a total of $52 of consumer surplus from buying one ticket each.No one else will buy a ticket.
D)Xavier,Yolanda,and Zachary will receive a total of $68 of consumer surplus since they will buy no tickets.

Question 9

The additional benefit to a consumer from consuming one more unit of a good or service

A)is equal to consumer surplus.
B)is equal to the opportunity cost of consuming the good or service.
C)is equal to marginal benefit.
D)is equal to economic surplus.

Question 10

Marco goes to the pet store to buy a dozen Koi fish for his new Koi pond.He is willing to pay $200 for the dozen fish,but buys them for a total of $140.Marco's consumer surplus from the purchase is

A)$5.
B)$60.
C)$140.
D)$200.

Question 11

Table 4-1

Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of one of the bottles is $27 dollars,total consumer surplus will be

A)$0.
B)$14.
C)$26.
D)$53.

Question 12

Suppose there are two cities that have rent controlled apartments.In one city (Albany)all apartments are subject to rent control; in the other city (Halftrack)one-half of the apartments are rent controlled.Which of the following is most likely to be true?

A)It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack apartments not subject to controls will be higher than they would be without rent control.
B)It will be easier to find an affordable apartment in Albany since rents will be low across the board.
C)It will be easier to find an affordable apartment in Halftrack,either a rent-controlled apartment or another apartment,at a reasonable price.
D)It will be impossible to rent an apartment in either city at any price.

Question 13

Each point on a demand curve shows

A)the willingness of consumers to purchase a product at different prices.
B)the consumer surplus received from purchasing a given quantity of a product.
C)the economic surplus received from purchasing a given quantity of a product.
D)the legally determined maximum price that sellers may charge for a given quantity of a product.

Question 14

Table 4-2

Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket is $50

A)everyone will buy a ticket.
B)consumer surplus will be maximized.
C)Violet's consumer surplus is $2.
D)no one will buy a ticket.

Question 15

Monique buys a new television for $795.She receives consumer surplus of $355 from the purchase.How much does Monique value her television?

A)$355
B)$440
C)$795
D)$1150

Question 16

A consumer is willing to purchase a product up to the point where

A)he spends all of his income.
B)the marginal benefit is equal to the price of the product.
C)the quantity demanded is equal to the quantity supplied.
D)he is indifferent between consuming and saving.

Question 17

Table 4-1

Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of the champagne falls from $24 to $14

A)consumer surplus increases from $32 to $53.
B)Curly will buy four bottles; Moe will buy two bottles,and Larry will buy one bottle.
C)consumer surplus will increase from $80 to $95.
D)Larry and Moe will receive more consumer surplus than Curly.

Question 18

Table 4-1

Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of one of the bottles is $24 dollars

A)Curly will buy two bottles,Moe will buy one bottle and Larry will buy no bottles.
B)Curly will receive $26 of consumer surplus from buying one bottle.
C)Curly and Moe receive a total of $80 of consumer surplus from buying one bottle each.Larry will buy no bottles.
D)Larry will receive $15 of consumer surplus since he will buy no bottles.

Question 19

The maximum price that a buyer is willing to pay for a good measures his

A)consumer surplus.
B)marginal benefit.
C)willingness to pay.
D)producer surplus.

Question 20

Table 4-1

Refer to Table 4-1.The table above lists the highest prices three consumers,Curly,Moe,and Larry,are willing to pay for a bottle of champagne.If the price of one of the bottles is $95 dollars,total consumer surplus will be

A)$0.
B)$35.
C)$80.
D)$95.

Question 21

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $2.50,what is the consumer surplus on the first ice cream cone?

A)$0.50
B)$1.00
C)$3.50
D)$9.00

Question 22

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the market price of Marko's polo shirts is $13,Marko's will produce

A)1 shirt.
B)2 shirts.
C)3 shirts.
D)4 shirts.

Question 23

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.Kendra's marginal benefit from consuming the third ice cream cone is

A)$13.00.
B)$2.50.
C)$1.50.
D)$0.50.

Question 24

The willingness of consumers to buy a product at different prices is shown on a

A)demand curve.
B)supply curve.
C)production possibilities frontier.
D)marginal cost curve.

Question 25

Consumer surplus in a market for a product would be equal to the area under the demand curve if

A)producer surplus was equal to zero.
B)marginal cost was equal to the market price.
C)the product was produced in a perfectly competitive market.
D)the market price was zero.

Question 26

Table 4-2

Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket falls from $50 to $20

A)only three tickets will be sold.
B)consumer surplus decreases from $48 to $24.
C)consumer surplus increases from $0 to $62.
D)everyone will buy a ticket.

Question 27

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $2.50,what is the consumer surplus on the second ice cream cone?

A)$0.50
B)$1.50
C)$3.00
D)$10.50

Question 28

A supply curve shows

A)the quantities sold at different prices.
B)the marginal cost of producing one more unit of a good or service.
C)the marginal benefit from buying one more unit of a good or service.
D)the total cost of producing different quantities of a good or service.

Question 29

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $2.50,what is Kendra's consumer surplus?

A)$9.00
B)$7.50
C)$1.50
D)$0

Question 30

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the market price of Marko's polo shirts is $30,Marko's will produce

A)0 shirts.
B)1 shirt.
C)3 shirts.
D)4 shirts.

Question 31

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the market price of Marko's polo shirts is $18

A)Marko's will produce four shirts.
B)producer surplus from the first shirt is $18.
C)producer surplus will equal $22.
D)there will be a surplus; as a result,the price will fall to $7.

Question 32

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.Kendra's marginal benefit from consuming the second ice cream cone is

A)$6.50.
B)$6.00.
C)$3.00.
D)$2.25.

Question 33

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the price of polo shirts decreases from $15 to $10

A)consumers will buy no polo shirts.
B)the marginal cost of producing the third polo shirt will increase to $25.
C)producer surplus will fall from $13 to $3.
D)there will be a shortage of polo shirts.

Question 34

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the market price of Marko's polo shirts is $30,producer surplus is

A)$0.
B)$16.
C)$52.
D)$68.

Question 35

The additional cost to a firm of producing one more unit of a good or service is the

A)minimum cost.
B)total cost.
C)opportunity cost.
D)marginal cost.

Question 36

Which of the following statements is not true?

A)Consumer surplus measures the difference between the highest price a consumer is willing to pay for a product and the price she actually pays.
B)Marginal benefit is the additional benefit to a consumer from consuming one more unit of a product.
C)Consumer surplus measures the net benefit from participating in a market.
D)Producer surplus measures the total benefit received by producers from participating in a market.

Question 37

Table 4-3

Refer to Table 4-3.The table above lists the marginal cost of polo shirts by Marko's,a firm that specializes in producing men's clothing.If the price of polo shirts increases from $15 to $20

A)consumers will buy no polo shirts.
B)the marginal cost of producing the third polo shirt will increase to $20.
C)producer surplus will rise from $13 to $28.
D)there will be a surplus of polo shirts.

Question 38

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.Kendra's marginal benefit from consuming the first ice cream cone is

A)$9.00.
B)$7.50.
C)$3.50.
D)$0.50.

Question 39

The area above the market supply curve and below the market price

A)is equal to the total amount of producer surplus in a market.
B)is equal to the marginal cost of the last unit produced.
C)is equal to the total amount of economic surplus in a market.
D)is equal to the total cost of production.

Question 40

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $2.50,what is the consumer surplus on the third ice cream cone?

A)$0
B)$0.50
C)$1.50
D)$2.50

Question 41

The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called

A)producer surplus.
B)profit.
C)marginal revenue.
D)price differential.

Question 42

Economists working for Uber,along with economists from the University of Oxford and the University of Chicago,estimated the consumer surplus attributed to Uber.For the 4 largest U.S.markets,these economists estimated that the total consumer surplus from Uber in 2015 was

A)almost $0.
B)$13.30 per customer.
C)$2.88 billion.
D)6.76 billion.

Question 43

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.00,what is the consumer surplus on the first ice cream cone?

A)$0.50
B)$1.00
C)$5.50
D)$9.00

Question 44

The total amount of consumer surplus in a market is equal to the area below the market demand curve and above the market price.

Question 45

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.What is the total amount that Kendra is willing to pay for 3 ice cream cones?

A)$2.50
B)$7.50
C)$9.00
D)$13.50

Question 46

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.50,what is the consumer surplus on the first ice cream cone?

A)$0
B)$0.50
C)$3.50
D)$9.00

Question 47

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $4.00,what is the maximum number of ice cream cones that Kendra will buy?

A)0
B)2
C)3
D)4

Question 48

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.What is the total amount that Kendra is willing to pay for 2 ice cream cones?

A)$1.50
B)$3.00
C)$5.50
D)$6.50

Question 49

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.00,what is Kendra's consumer surplus?

A)$6.50
B)$5.50
C)$2.50
D)$0.50

Question 50

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.What is the total amount that Kendra is willing to pay for 1 ice cream cone?

A)$0.50
B)$3.50
C)$9.00
D)$13.50

Question 51

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.00,what is the consumer surplus on the second ice cream cone?

A)$0
B)$0.50
C)$3.00
D)$5.50

Question 52

Figure 4-2
Refer to Figure 4-2.What area represents producer surplus at a price of P₁?

A)C
B)A + C
C)C + E
D)A + C + E

Question 53

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.50,what is the maximum number of ice cream cones that Kendra will buy?

A)1
B)2
C)3
D)4

Question 54

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $2.50,what is the maximum number of ice cream cones that Kendra will buy?

A)1
B)2
C)3
D)4

Question 55

Figure 4-2
Refer to Figure 4-2.What area represents the decrease in producer surplus when the market price falls from P₂ to P₁?

A)C + E
B)A + C + E
C)A + B
D)B + D

Question 56

Figure 4-1 Figure 4-1 shows Kendra's demand curve for ice cream cones.
Refer to Figure 4-1.If the market price is $3.50,what is Kendra's consumer surplus?

A)$9.00
B)$7.50
C)$3.50
D)$0

Question 57

Suppliers will be willing to supply a product in all of the following situations except when

A)the price received is greater than the additional cost of producing the product.
B)the price received is at least equal to the additional cost of producing the product.
C)the price received is equal to the additional cost of producing the product.
D)the price received is less than the additional cost of producing the product.

Question 58

The total amount of producer surplus in a market is equal to the area above the market supply curve and below the market price.

Question 59

Producer surplus is the difference between the highest price a firm is willing to accept for a product and the price it actually receives for the product.

Question 60

Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.

Question 61

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents producer surplus at P₂?

A)A + B + D
B)B + D
C)B + D + G
D)B + C + D + E

Question 62

The sum of consumer surplus and producer surplus is equal to

A)the deadweight loss.
B)the economic surplus.
C)zero.
D)total profit.

Question 63

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents consumer surplus at P₂?

A)A
B)A + B
C)B + C
D)A + B + D + E

Question 64

In a competitive market equilibrium the ________ equals the ________ of the last unit sold.

A)total profit; marginal benefit
B)total cost; marginal cost
C)profit; selling price
D)marginal benefit; marginal cost

Question 65

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.At the price P₂,consumers are willing to buy the Q₂ pounds of granola.Is this an economically efficient quantity?

A)No,the marginal benefit of the last unit (Q₂)exceeds the marginal cost of that last unit.
B)Yes,otherwise consumers would not buy Q₂ units.
C)Yes,because the price P₂ shows what consumers are willing to pay for the product.
D)No,the marginal cost of the last unit (Q₂)exceeds the marginal benefit of the last unit.

Question 66

What area on a supply and demand graph represents producer surplus?

Question 67

Deadweight loss refers to

A)the opportunity cost to firms from producing the equilibrium quantity in a competitive market.
B)the sum of consumer and producer surplus.
C)the loss of economic surplus when the marginal benefit equals the marginal cost of the last unit produced.
D)the reduction in economic surplus resulting from not being in competitive equilibrium.

Question 68

The market price for coffee is $2.25 per cup.Austin is willing to pay $5.00 per cup,Colin is willing to pay $4.00 per cup,Lucy is willing to pay $3.00 per cup,and Ike is willing to pay $2.00 per cup.Construct a graph showing the consumer surplus for each cup of coffee purchased.How many cups of coffee will be purchased? What is the value of the consumer surplus each of the four consumers receives from their coffee purchases?

Question 69

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents consumer surplus at the equilibrium price of P₁?

A)A
B)A + B + C
C)D + E
D)A + B + C + D + E

Question 70

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.At the equilibrium price of P₁,consumers are willing to buy Q₁ pounds of granola.Is this an economically efficient quantity?

A)No,the marginal benefit of the last unit (Q₁)exceeds the marginal cost of that last unit.
B)Yes,because marginal cost is zero at the price of P₁.
C)Yes,because P₁ is the price where marginal benefit equals marginal cost.
D)No,the marginal cost of the last unit (Q₁)exceeds the marginal benefit of the last unit.

Question 71

Assume the market price for tangerines is $18.00 per bushel.At the market price,tangerine growers are willing to supply a quantity of 12,000 bushels per week.The quantity supplied drops to zero when the price falls to $5.00 per bushel.Construct a graph showing this data,calculate the total producer surplus in the market for tangerines,and show the total producer surplus on the graph.Your supply curve should be a straight line.

Question 72

What is marginal cost? Which curve is also referred to as the marginal cost curve?

Question 73

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents producer surplus at the equilibrium price of P₁?

A)A + B + D
B)D + E
C)D + E + G + H
D)A + B + C + D + E

Question 74

The additional benefit to a consumer from consuming one more unit of a good or service is the marginal benefit.

Question 75

When the marginal benefit equals the marginal cost of the last unit sold in a competitive market,

A)the net benefit of consumers is equal to the net benefit of producers.
B)an economically efficient level of output is produced.
C)producer surplus is equal to consumer surplus.
D)total benefit is equal to total cost.

Question 76

The additional cost to a firm of producing one more unit of a good or service is equal to producer surplus.

Question 77

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents the deadweight loss at the equilibrium price of P₁?

A)C + E + H
B)G + H
C)C + E
D)There is no deadweight loss at the price of P₁.

Question 78

Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P_2.
Refer to Figure 4-3.What area represents the deadweight loss at P₂?

A)C + E + H
B)G + H
C)C + E
D)B + C

Question 79

Economic surplus is maximized in a competitive market when

A)demand is equal to supply.
B)the deadweight loss equals the sum of consumer surplus and producer surplus.
C)marginal benefit equals marginal cost.
D)producers sell the quantity that consumers are willing to buy.

Question 80

What is consumer surplus? Why would policy makers be interested in consumer surplus?