Deck 7: Market Efficiency and Welfare

Question 1

A subsidy in an industry would be likely to increase the consumer surplus for buyers in that industry and increase the producer surplus for sellers in that industry.

Answer 1

True

Question 2

Producer surplus is always the total area below the demand curve and above the supply curve.

Answer 2

False

Question 3

Consumer surplus increases whenever the price of a good increases due to a leftward shift of the supply curve.

Answer 3

False

Question 4

Consumer surplus is always the total area below the demand curve and above the price.

Question 5

The deadweight loss from a tax is the reduction in producer and consumer surplus minus the tax revenue transferred to the government.

Question 6

Total welfare gains from trade to the economy can be measured by the sum of consumer and producer surplus.

Question 7

The difference between the value of a good to consumers and its price is known as:

A) demand.
B) marginal utility.
C) total utility.
D) consumer surplus.

Question 8

If a customer had to pay a $5 entry charge to get into a roller coaster theme park,and then pay $2 per ride,she would get less consumer surplus than if she was able to pay $2 per ride with no entry charge.

Question 9

If James is willing to sell an extra concert ticket for $40 and actually sells it for $100,his consumer surplus is $60.

Question 10

Other things equal,a price floor will reduce consumer surplus,but it will increase producer surplus if the government buys up any surplus at the price floor.

Question 11

Consumer surplus equals the quantity supplied minus the quantity demanded.

Question 12

The more elastic the demand curve,the smaller is the deadweight loss resulting from the imposition of a tax.

Question 13

If the world supply of diamonds decreases,diamonds become more valuable,and therefore,the consumer surplus derived from diamonds increases.

Question 14

Other things equal,a price ceiling will increase consumer surplus by allowing customers to buy more at the lower price.

Question 15

If the government provides a subsidy in one industry and raises the tax revenue by taxing another industry,would,other things equal,cause welfare costs in both industries.

Question 16

If the world supply of diamonds increases,the market price of diamonds decreases,and the consumer surplus derived by diamond consumers increases.

Question 17

Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit.

Question 18

Producer surplus is always the total area below the price and above the supply curve.

Question 19

Consumer surplus increases whenever the price of a good decreases due to a rightward shift of the supply curve.

Question 20

If Ming is willing to pay $75 to attend the Broadway production of The Lion King but actually pays $40,she receives a consumer surplus of $35.

Question 21

The area between the market price and the supply curve provides a measure of:

A) consumer surplus.
B) producer surplus.
C) consumer surplus plus producer surplus.
D) marginal utility.

Question 22

Consumer surplus is:

A) the area underneath the demand curve.
B) the total utility derived from consuming a good.
C) the marginal utility of the last unit consumed multiplied by the number of units consumed.
D) the difference between what consumers are willing to pay and what they are required to pay for a good.

Question 23

Ceteris paribus,an increase in the price of a good will cause the:

A) quantity demanded of the good to increase.
B) quantity supplied of the good to decrease.
C) supply of the good to increase.
D) consumer surplus derived from the good to decrease.

Question 24

Graphically,consumer surplus is measured by:

A) the area below the demand curve.
B) the area below the demand curve, but above the upward-sloping supply curve.
C) the area below the demand curve, but above the market price.
D) the area below the market demand curve, but above the supply curve.

Question 25

Exhibit 7-2 Refer to Exhibit 7-2.What is the total amount of consumer surplus assuming this market reaches equilibrium?

A) $1.00
B) $2.00
C) $3.00
D) $6.00

Question 26

Exhibit 7-2 Refer to Exhibit 7-2.What is the consumer surplus of the 2^nd unit consumed assuming this market reaches equilibrium?

A) $1.00
B) $2.00
C) $3.00
D) $7.00

Question 27

Exhibit 7-1 Miles demands jazz CDs according to the following demand schedule:
Refer to Exhibit 7-1.If the price of the jazz CDs equals $15,the total consumer surplus Miles receives from purchasing jazz CDs is:

A) $15.
B) $25.
C) $30.
D) $55.

Question 28

Lydia enjoys going to the theater to see Broadway musicals.The following demand schedule shows Lydia's willingness to pay for theater tickets in a year. If the price of tickets to Broadway musicals equals $50,Lydia's consumer surplus will be:

A) $350.
B) $300.
C) $250.
D) $100.

Question 29

The difference between the amount a consumer is willing to pay and the amount they actually must pay for a good is called the:

A) price elasticity of demand.
B) substitution effect.
C) consumer surplus.
D) income elasticity of demand.

Question 30

The area between the market price and the demand curve provides a measure of:

A) consumer surplus.
B) producer surplus.
C) consumer surplus plus producer surplus.
D) marginal utility.

Question 31

Which of the following best explains the source of consumer surplus for Good A?

A)Many consumers pay prices that are greater than the equilibrium price of Good A.
B)Many consumers would be willing to pay more than the market price for some units of Good A.
C)Many consumers think the market price of Good A is greater than its cost.
D)Many consumers of Good A place a value on it that is less than the market price.

Question 32

If Stephanie buys a laptop for $700 and the maximum she would have paid was $1,000,which of the following is true?

A) Stephanie received consumer surplus of $1,000.
B) Stephanie received producer surplus of $700.
C) Stephanie received a consumer surplus of $700.
D) Stephanie received a consumer surplus of $300.

Question 33

Gains from trade are measured by:

A) consumer surplus.
B) producer surplus.
C) the sum of consumer and producer surplus.
D) producer surplus minus consumer surplus.

Question 34

Exhibit 7-1 Miles demands jazz CDs according to the following demand schedule:
Refer to Exhibit 7-1.If in the schedule,total consumer surplus equals $5,the market price of a jazz CD is:

A) $10.
B) $15.
C) $20.
D) $25.

Question 35

Total welfare gains from trade to the economy can be measured:

A) as the sum of consumer and producer surpluses.
B) as the difference between producer surplus and consumer surplus.
C) as the sum of consumer and producer surpluses minus taxes
D) as the net gain in consumer surplus that results from an action that alters a market equilibrium.

Question 36

The difference between the value of a good to sellers and its price is known as:

A) consumer surplus.
B) producer surplus.
C) demand.
D) supply.

Question 37

Exhibit 7-2 Refer to Exhibit 7-2.What is the producer surplus of the 1^st unit sold assuming this market reaches equilibrium?

A) $1.00
B) $2.00
C) $3.00
D) $7.00

Question 38

Ceteris paribus,a decrease in the price of a good will cause the:

A) quantity demanded of the good to decrease.
B) quantity supplied of the good to increase.
C) consumer surplus derived from the good to increase.
D) supply of the good to decrease.

Question 39

Exhibit 7-2 Refer to Exhibit 7-2.What is the total amount of producer surplus assuming this market reaches equilibrium?

A) $1.00
B) $2.00
C) $3.00
D) $6.00

Question 40

Exhibit 7-1 Miles demands jazz CDs according to the following demand schedule:
Refer to Exhibit 7-1.If the price of the jazz CDs equals $20,the consumer surplus Miles receives from purchasing jazz CDs is:

A) $10.
B) $15.
C) $20.
D) $55.

Question 41

A price ceiling imposed below equilibrium price causes a deadweight loss for society because:

A) buyers benefit at the expense of sellers.
B) as a result of the ceiling, units of output are not produced despite the fact that the value to consumers exceeds the production cost.
C) sellers benefit at the expense of buyers.
D) the poor gain at the expense of the rich.

Question 42

A tax on a product causes a deadweight loss because:

A) some consumer surplus is transferred from buyers to producers.
B) some producer surplus is transferred from producers to consumers.
C) some consumer and producer surplus is transferred to the government.
D) it distorts the incentives of producers and consumers so that the efficient level of output is not produced.

Question 43

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
Refer to Exhibit 7-4.If the price of shrimp were to decrease from $12 to $10,the increase in consumer surplus would equal:

A) $2.
B) $6.
C) $10.
D) $13.

Question 44

Other things being equal,the more elastic demand is:

A) the lower the deadweight loss is resulting from the imposition of a particular tax on a product.
B) the greater the deadweight loss is resulting from the imposition of a particular tax on a product.
C) the greater the fraction is of the burden of the tax borne by consumers.
D) the greater the tax revenue collected by the government is.

Question 45

Which of the following statements is always true?

A) An increase in price will lead to an increase in producer surplus along a supply curve.
B) An increase in price will lead to an increase in consumer surplus along a demand curve..
C) A price ceiling will lead to an increase in consumer surplus.
D) A price floor will lead to an increase in consumer surplus.

Question 46

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community.
Refer to Exhibit 7-5.If the market price of wine is $30,the total consumer surplus for the community equals:

A) $20,000.
B) $30,000.
C) $50,000.
D) $60,000.

Question 47

Goods that are heavily taxed,such as alcohol and cigarettes,often have:

A) relatively inelastic demand, such that the tax burden falls primarily on sellers and the deadweight loss associated with the tax is smaller than if demand were elastic.
B) relatively elastic demand, such that the tax burden falls primarily on sellers and the deadweight loss associated with the tax is smaller than if demand were inelastic.
C) relatively inelastic demand, such that the tax burden falls primarily on buyers and the deadweight loss associated with the tax is smaller than if demand were elastic.
D) relatively elastic demand, such that the tax burden falls primarily on buyers and the deadweight loss associated with the tax is smaller than if demand were inelastic.

Question 48

Exhibit 7-3 Refer to Exhibit 7-3.What is the consumer surplus of the 10^th unit bought/sold?

A) $1.25
B) $2.25
C) $2.75
D) $3.50

Question 49

The net loss to society from a tax on a product can be measured as:

A) the loss in consumer surplus.
B) the loss in producer surplus.
C) the loss in both consumer and producer surplus.
D) the difference between the loss in consumer and producer surplus and the gain in tax revenue.

Question 50

Phil and Lasca have always wanted to take a cruise.Although willing to pay $5,000 for a Caribbean cruise for two,they were able to purchase a cruise vacation for two for $3,500.Their total consumer surplus amounted to:

A) $750.
B) $5,000.
C) $1,500.
D) $3,500.

Question 51

Consumer surplus measures:

A) the total benefits received from consuming a given quantity of a good.
B) the marginal benefit received from consuming the last unit of a good.
C) the net benefits received by consumers after deducting the cost of purchasing a good.
D) the dollar amount spent on units of a particular good.

Question 52

Exhibit 7-3 Refer to Exhibit 7-3.What is the sum of consumer surplus and producer surplus for the 10^th unit bought/sold?

A) $3.50
B) $5.00
C) $6.25
D) $25.00

Question 53

Exhibit 7-5 The schedule below represents the willingness of a typical consumer to pay for wine in a year.Suppose there are 10,000 identical consumers in the community.
Refer to Exhibit 7-5.If the market price of wine is $20,the total consumer surplus for the community equals:

A) $20,000.
B) $30,000.
C) $50,000.
D) $60,000.

Question 54

As a result of the imposition of a tax on a product:

A) some consumer surplus is transferred from buyers to producers.
B) some producer surplus is transferred from sellers to consumers.
C) some consumer and producer surplus is transferred from buyers and sellers to the government.
D) there is no change in either consumer or producer surplus.

Question 55

Exhibit 7-4 The schedule below shows the prices that a consumer is willing to pay for pounds of shrimp:
Refer to Exhibit 7-4.If the price of shrimp is $12 per pound,according to the schedule total consumer surplus equals:

A) $8.
B) $12.
C) $14.
D) $36.

Question 56

As a result of a per-unit tax on output in a market:

A) the quantity traded increases.
B) the quantity traded does not change.
C) the quantity traded decreases.
D) a surplus is created at the new equilibrium price.

Question 57

Exhibit 7-3 Refer to Exhibit 7-3.What is the producer surplus of the 10^th unit bought/sold?

A) $1.25
B) $2.25
C) $2.75
D) $3.50

Question 58

As the market price of a good falls due to an increase in supply,consumer surplus:

A) falls.
B) rises.
C) does not change.
D) can either fall, rise, or stay the same.

Question 59

A deadweight loss occurs as a result of a per-unit tax because:

A) the government spends tax dollars less efficiently than do private citizens.
B) there is a decline in output for units for which the marginal benefit exceeds the marginal cost.
C) taxes cause an overproduction of output relative to the socially efficient level or production.
D) a surplus is created.

Question 60

Other things being equal,the less elastic demand is:

A) the lower the deadweight loss is resulting from the imposition of a given tax on a product.
B) the greater the burden is of the tax borne by consumers.
C) the greater the tax revenue collected by the government is.
D) all of the above

Question 61

The more elastic the supply curve,the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.

A) greater; greater.
B) greater; smaller.
C) smaller; greater.
D) smaller; smaller.

Question 62

Fred's demand schedule for movie DVDs is as follows: At $60,he would buy 1; at $50,he would buy two; at $30,he would buy 3; and at $20,he would buy 4.If the price of movie DVDs equals $40,the consumer surplus Fred receives from purchasing movie DVDs would be:

A) $20.
B) $30.
C) $40.
D) $110.

Question 63

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P₃,sellers lose producer surplus equal to area:

A)C + D + F.
B)B + C + E +F.
C)E + F.
D)C + F.

Question 64

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price floor equal to P₁,society suffers a deadweight loss equal to area:

A)C + D + F.
B)A + B + E.
C)E + F.
D)E only.

Question 65

Exhibit 7-6 Refer to Exhibit 7-6.If the market price equals P₂,producer surplus can be identified in the diagram as area:

A)A + B + E.
B)B + E.
C)D.
D)C + D+ F.

Question 66

Which of the following is true about producer surplus?

A) Producer surplus is how much more it costs sellers than they are paid.
B) Producer surplus is shown graphically as the area under the demand curve but above the supply curve.
C) An increase in the market price due to an increase in demand will increase producer surplus.
D) All of the above are true about producer surplus.

Question 67

A tax in an industry would result in:

A) a decrease in consumer surplus.
B) a decrease in producer surplus
C) a decrease in the gains from trade.
D) all of the above.

Question 68

Which of the following is true about consumer surplus?

A) Consumer surplus is how much more consumers have to pay than they are willing to pay.
B) Consumer surplus is shown graphically as the area under the demand curve but above the supply curve.
C) An increase in the market price due to a decrease in supply will increase consumer surplus.
D) A decrease in market price due to an increase in supply will increase consumer surplus.

Question 69

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P₃,buyers lose consumer surplus equal to area ____,but gain consumer surplus equal to area ____.

A) F; C
B) E; C
C) E + F; C
D) D; C + F

Question 70

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price floor equal to P₁,sellers lose producer surplus equal to area ____,but gain producer surplus equal to area ____.

A) E + F; B
B) F; C
C) F; B
D) E; C

Question 71

The more elastic the demand curve,the ____ will be the effect of a tax on the quantity exchanged and the ____ will be the welfare cost.

A) greater; greater.
B) greater; smaller.
C) smaller; greater.
D) smaller; smaller.

Question 72

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price ceiling equal to P₃,society suffers a deadweight loss equal to area:

A)C + D + F.
B)A + B + E.
C)E + F.
D)E only.

Question 73

Welfare effects are the gains and losses associated with ____ in markets.

A) supply shocks
B) government intervention
C) excess production
D) demand supply gap

Question 74

Other things equal,for a given tax,if the demand curve is more elastic,

A) the greater the tax revenue raised and the greater the deadweight cost of the tax.
B) the greater the tax revenue raised and the smaller the deadweight cost of the tax.
C) the less the tax revenue raised and the greater the deadweight cost of the tax.
D) the less the tax revenue raised and the smaller the deadweight cost of the tax.

Question 75

Fred's demand schedule for movie DVDs is as follows: At $30,he would buy 1; at $25,he would buy two; at $15,he would buy 3; and at $10,he would buy 4.If the price of movie DVDs equals $25,the consumer surplus Fred receives from purchasing movie DVDs would be:

A) zero.
B) $5.
C) $25.
D) $55.

Question 76

Which of the following is true?

A) If the consumer is a buyer of several units of a good, the earlier units will have greater marginal value and therefore create more consumer surplus, because marginal willingness to pay falls as greater quantities are consumed in any period.
B) When some units of output can be produced at a cost that is lower than the market price, the seller receives a surplus, or net benefit, from producing those units.
C) At the market equilibrium both consumers and producers benefit from trading every unit up to the market equilibrium output.
D) All of the above are true.

Question 77

Exhibit 7-6 Refer to Exhibit 7-6.If the market price equals P₂,consumer surplus can be identified in the diagram as area:

A)A + B + E.
B)B + E.
C)A.
D)C + D + F.

Question 78

A subsidy in an industry would result in:

A) an increase in consumer surplus.
B) an increase in producer surplus
C) both (a) and (b).
D) none of the above.

Question 79

Which of the following is true?

A) A lower price will increase your consumer surplus by the amount you were buying originally, times the reduction in the price.
B) A lower price will leave unchanged your consumer surplus for each of the units you were already consuming, but will increase consumer surplus from increased purchases at the lower price.
C) A lower price will decrease your producer surplus for each of the units you were producing, but will not change producer surplus by changing the quantity sold.
D) None of the above is true.

Question 80

Exhibit 7-6 Refer to Exhibit 7-6.If the market is in equilibrium and then the government imposes a price floor equal to P₁,buyers lose consumer surplus equal to area:

A)C + D + F.
B)B + C + E + F.
C)E + F.
D)B + E.