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.

Accepted Answer

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

Question 2

Welfare economics is the study of the welfare system.

Accepted Answer

Welfare economics is not the study of the welfare system. It is a branch of economics that studies how economic activities affect social welfare, and how to improve societal well-being through economic policies. The welfare system is a government program that provides assistance, such as food stamps and Medicaid, to low-income individuals and families.

Question 3

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

Accepted Answer

Your willingness to pay is $130, as consumer surplus is the difference between what you are willing to pay and what you actually pay.

Question 4

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

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay. It measures the benefit or value that consumers receive from participating in a market.

Question 5

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

Accepted Answer

An increase in supply means that there is a greater quantity of the good available in the market, which will typically lead to a decrease in price. This decrease in price will create a larger area of consumer surplus, as consumers are able to purchase the same amount of the good while paying a lower price.

Question 6

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

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service (in this case $50) and the actual price paid (in this case $40). Therefore, the consumer surplus for Darby in this case would be $10 ($50 - $40 = $10).

Question 7

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

Accepted Answer

This is the correct definition of consumer surplus.

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.

Accepted Answer

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 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.

Accepted Answer

The definition of willingness to pay is accurate.

Question 10

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

Accepted Answer

A price floor sets a minimum price above the equilibrium price, which reduces the quantity demanded and creates a surplus of supply. This decrease in quantity demanded leads to a decrease in consumer surplus as some consumers are priced out of the market, unable or unwilling to pay the higher price.

Question 11

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

Accepted Answer

Consumer surplus is the difference between the value a consumer places on a good and the price they actually pay for it. In this case, Darby values the soccer ball at $50 but pays $40, so her consumer surplus would be $10, not $90. Therefore, the statement is false.

Question 12

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

Accepted Answer

A binding price floor creates a situation where the price cannot go below a certain level. This leads to a surplus of supply, as producers are willing to supply more than the market demands at the higher price. This surplus of supply often leads to a decrease in consumer surplus, as consumers end up paying more for the same product.

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.

Accepted Answer

This is the correct definition of consumer surplus.

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.

Accepted Answer

Susie's consumer surplus is $3,000 because it is the difference between the maximum amount she was willing to pay ($11,000) and the actual amount she paid ($8,000).

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.

Accepted Answer

The increase in supply and subsequent decrease in market price benefit both existing and new buyers, leading to an overall increase in consumer surplus.

Question 16

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

Accepted Answer

The demand curve shows the relationship between price and quantity demanded, and at any given quantity, the price on the demand curve represents the marginal buyer's willingness to pay - the highest price the buyer is willing to pay for that one additional unit.

Question 17

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

Accepted Answer

Consumer surplus is measured as the area between the demand curve and the price level, up to the quantity demanded.

Question 18

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

Accepted Answer

Consumer surplus increases as the price decreases because consumers are paying less than what they are willing to pay for a good or service, thus increasing the difference between their willingness to pay and the actual price.

Question 19

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

Accepted Answer

An increase in demand typically raises prices, which can reduce consumer surplus because consumers are paying more for the same quantity of goods or services. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.

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.

Accepted Answer

Consumer surplus is the difference between the maximum amount a consumer is willing to pay (in this case, $450) and the actual price they pay. Therefore, if the consumer surplus is $175, the actual price Rosa paid would be $450 - $175 = $275. Thus, the statement that the price of the tickets is $625 is false.

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

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.

Welfare economics is the study of the welfare system.

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

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

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

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

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

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.

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.

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

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

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

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.

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.

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.

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

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

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

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

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