Question 1

Which of the following will cause a decrease in producer surplus?

Accepted Answer

A binding price ceiling will limit the price that producers can charge for their goods, leading to a decrease in producer surplus.

Question 2

Which of the following statements is not correct?

Accepted Answer

Although sellers may not have full control over the price of their product, they can still choose whether or not to sell it at a given price. Therefore, they may not be willing to sell their product at any price.

Question 3

Which of the following events would increase producer surplus?

Accepted Answer

When the price of the good increases while the sellers' costs remain the same, the producer can charge more for each unit sold and therefore increase their revenue and producer surplus.

Question 4

The welfare of sellers is measured by

Accepted Answer

The welfare of sellers is measured by producer surplus, which is the difference between the price a seller receives and the minimum amount they are willing to accept to produce and sell the good or service.

Question 5

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

Accepted Answer

The Surgeon General's announcement will decrease the demand for chocolate as consumers become more aware of its negative effects on dental health. This decrease in demand will cause the equilibrium price of chocolate to decrease as well. As a result, producers will experience a decrease in producer surplus. Therefore, option D is the best choice.

Question 6

When a buyer's willingness to pay for a good is equal to the price of the good, the

Accepted Answer

When a buyer's willingness to pay for a good is equal to the price of the good, it means that the buyer values the good exactly as much as the price they have to pay for it. Therefore, they are indifferent between buying the good and not buying it, as there is no extra benefit or cost to them either way.

Question 7

Which of the following will cause an increase in producer surplus?

Accepted Answer

An increase in the price of a substitute will cause buyers to turn to the original product, increasing demand for it and allowing producers to charge a higher price, thus increasing their surplus. The other choices either decrease producer surplus (A) or have no effect on it (B and D).

Question 8

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

Accepted Answer

If consumer income increases, the demand for all normal goods will increase, including grass seed. As a result, the equilibrium quantity of grass seed will increase.

Since the supply curve for grass seed is upward sloping, the increase in demand will lead to an increase in the equilibrium price.

Moreover, producer surplus in the industry will increase because the increase in demand for grass seed will allow producers to sell more units at a higher price, which increases their total revenue and profit.

Question 9

If the demand for light bulbs increases, producer surplus in the market for light bulbs

Accepted Answer

When the demand for light bulbs increases, the equilibrium price of light bulbs also increases. This allows producers to charge a higher price and receive a higher producer surplus. Therefore, producer surplus in the market for light bulbs increases.

Question 10

Willingness to pay

Accepted Answer

Willingness to pay measures the maximum value that a buyer places on a good, which is the highest amount they are willing to pay for it.

Question 11

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Accepted Answer

The maximum amount that Raymond and Victoria are willing to pay for the oil painting is their willingness to pay. This is the highest price they are willing to pay for the painting and represents their subjective value of the painting.

Question 12

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

Accepted Answer

The answer of Suppose that the market price for pizzas...

Question 13

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples

Accepted Answer

With the announcement that eating apples promotes healthy teeth, there is an increase in the demand for apples. This will cause the equilibrium price of apples to increase, leading to an increase in producer surplus for apple producers.

Question 14

The maximum price that a buyer will pay for a good is called

Accepted Answer

The maximum price that a buyer is willing to pay for a good is called willingness to pay. Consumer surplus is the difference between the price paid for a good and the maximum price a consumer is willing to pay, which is related to willingness to pay but not the same thing. Equilibrium and efficiency are concepts related to market outcomes, but are not directly related to the maximum price a buyer is willing to pay for a good.

Question 15

If the demand for leather decreases, producer surplus in the leather market

Accepted Answer

If the demand for leather decreases, the equilibrium price for leather may decrease, reducing producer surplus. As a result, choice B is the correct answer.

Question 16

Which of the following will cause no change in producer surplus?

Accepted Answer

A nonbinding price ceiling means that the market is already operating at an equilibrium price that is below the ceiling. Therefore, no change in producer surplus will occur.

Question 17

A consumer's willingness to pay directly measures

Accepted Answer

A consumer's willingness to pay represents the maximum amount of money they are willing to spend to acquire a good. This indicates how much the consumer values the good and is willing to give up in other purchases or activities to obtain it. Therefore, choice C - how much a buyer values a good - is the best answer.

Question 18

Which of the following will cause a decrease in producer surplus?

Accepted Answer

When income increases and buyers consider the good to be inferior, demand for the good decreases, leading to a lower equilibrium price and quantity, which decreases producer surplus.

Question 19

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

Accepted Answer

Larry, Moe, and Curly each have a maximum amount they are willing to pay for the video, which is their willingness to pay. This is not the same as a resistance price, which is the minimum price a seller is willing to accept, nor is it consumer surplus or producer surplus, which are measures of the value created by a transaction.

Question 20

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?

Accepted Answer

Both companies have a cost advantage over the price of 40 cents. With an increase in the price of 15 cents, ABC Company would experience an increase in producer surplus since their cost is only 50 cents. Similarly, XYZ Company would experience an increase in producer surplus with an increase in the price of 20 cents since their cost is 70 cents. Therefore, option C where the price increases from 55 cents to 75 cents would cause both companies to experience an increase in producer surplus. Option B would only benefit ABC Company, while Option A and Option D would result in a loss for both companies.

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

Which of the following will cause a decrease in producer surplus?

Which of the following statements is not correct?

Which of the following events would increase producer surplus?

The welfare of sellers is measured by

The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate

When a buyer's willingness to pay for a good is equal to the price of the good, the

Which of the following will cause an increase in producer surplus?

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will

If the demand for light bulbs increases, producer surplus in the market for light bulbs

Willingness to pay

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples

The maximum price that a buyer will pay for a good is called

If the demand for leather decreases, producer surplus in the leather market

Which of the following will cause no change in producer surplus?

A consumer's willingness to pay directly measures

Which of the following will cause a decrease in producer surplus?

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?