Question 1

Consumer surplus is the:

Accepted Answer

Consumer surplus is the difference between the amount that a consumer is willing to pay for a good and the amount that the consumer actually pays for the good. It represents the benefit that the consumer receives from the good, over and above the price that is paid.

Question 2

Graph 7-1 -Refer to Graph 7-1. What area represents consumer surplus when the price is P₁?

Accepted Answer

The answer of Graph 7-1
 
-Refer to Graph 7-1. What...

Question 3

Graph 7-1 -Refer to Graph 7-1. What area represents producer surplus when the price is P₁?

Accepted Answer

Producer surplus is the area above the supply curve and below the price. When the price is P₁, the producer surplus is the area above the supply curve (U1B1) and below the price (PS1). Hence, the area represented by C is the producer surplus.

Question 4

Other things being equal, if the price of a good falls, the consumer surplus:

Accepted Answer

When the price of a good falls, the consumer gains more surplus as they are able to purchase the good at a lower cost. This results in an increase in consumer surplus.

Question 5

Graph 7-2 -Refer to Graph 7-2. At the higher price P₂, consumer surplus is:

Accepted Answer

The answer of Graph 7-2
 
-Refer to Graph 7-2. At...

Question 6

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z.
 
-Refer to Table 7-1. If the price of good Z is $9.99, who will not purchase the good?

Accepted Answer

If the price of good Z is $9.99, then John, Jeremy, and Sarah will not purchase it because their willingness to pay is less than $9.99. Cassie and Jamie are willing to pay more than $9.99, so they would still purchase the good.

Question 7

Suppose hail storms damage vineyards in South Australia. The supply of grapes to local winemakers declines. What happens to consumer surplus in the market for South Australian wine?

Accepted Answer

If the supply of grapes to local winemakers declines, there will likely be a decrease in the quantity of South Australian wine available in the market, which could lead to an increase in prices. This would result in a decrease in consumer surplus, as consumers would have to pay more for the same amount of wine.

Question 8

Amy buys a new dog for $1500. She receives consumer surplus of $300 on her purchase. Her willingness to pay is:

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what the consumer actually pays. Amy's willingness to pay is her actual payment ($1500) plus her consumer surplus ($300), totaling $1800.

Question 9

Graph 7-2 -Refer to Graph 7-2. When the price is P₁, consumer surplus is:

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid. In Graph 7-2, consumer surplus is represented by the area above the market price (PS1U1B0) and below the demand curve (D) up to the quantity purchased (Q). Therefore, consumer surplus is equal to the area of triangle ABC, which includes areas A, B, and C.

Question 10

If you pay a price exactly equal to your willingness to pay, then:

Accepted Answer

Consumer surplus is the difference between the highest price you're willing to pay and the actual price you pay. If you pay a price exactly equal to your willingness to pay, then there is no difference, and hence no consumer surplus.

Question 11

Economists generally agree that the goal in developing the concept of consumer surplus is to:

Accepted Answer

The answer of Economists generally agree that the goal in...

Question 12

Graph 7-2 -Refer to Graph 7-2. When the price rises from P₁ to P₂, consumer surplus:

Accepted Answer

The answer of Graph 7-2
 
-Refer to Graph 7-2. When...

Question 13

Graph 7-1 -Refer to Graph 7-1. What area represents total surplus in the market when the price is P₁?

Accepted Answer

Total surplus in the market is represented by the area above the supply curve and below the demand curve. At the price of P₁, the area of total surplus is B + C. Choice A includes some areas below the supply curve, which are not part of total surplus. Choice C and D include areas to the left of the equilibrium point, which are also not part of total surplus. Therefore, the best choice is B.

Question 14

Cameron visits a sporting goods store to buy a new set of golf clubs. He has willing to pay $950 for the clubs but buys them on sale for $425. Cameron's consumer surplus from the purchase is:

Accepted Answer

The answer of Cameron visits a sporting goods store to...

Question 15

Lucy often buys fish and is able to buy it for less than she is willing-to-pay. She later learns that fish has more health benefits than she realised. She now values fish even more than before. If the market price of fish does not change then:

Accepted Answer

Since Lucy now values fish even more than before, she is willing to pay a higher price for it. However, since the market price has not changed, she continues to buy it for less than she is willing to pay, leading to an increase in her consumer surplus.

Question 16

If the cost of producing passenger motor vehicles increases, then consumer surplus will:

Accepted Answer

The answer of If the cost of producing passenger motor...

Question 17

Table 7-1
This table refers to five possible buyers' willingness to pay for good Z.
 
-Refer to Table 7-1. If the market price is $6.00, the consumer surplus in the market will be:

Accepted Answer

Consumer surplus is the difference between the maximum amount a consumer is willing to pay (i.e. their willingness to pay) and the market price. To calculate consumer surplus, we must first determine the quantity demanded at the market price. In this case, we can see that all five buyers are willing to pay more than $6.00 for good Z, so the quantity demanded at $6.00 is 5. To calculate consumer surplus, we subtract the market price ($6.00) from the sum of each buyer's willingness to pay up to the quantity demanded (in this case, 5).

Buyer 1: Willingness to pay = $10.00 - Market price = $4.00
Buyer 2: Willingness to pay = $8.00 - Market price = $2.00
Buyer 3: Willingness to pay = $7.00 - Market price = $1.00
Buyer 4: Willingness to pay = $6.50 - Market price = $0.50
Buyer 5: Willingness to pay = $6.00 - Market price = $0.00

Adding up these values, we get a total consumer surplus of $8.00 + $6.00 + $5.00 + $6.50 + $6.00 = $31.50. Since only one buyer actually pays the market price, the other buyers receive consumer surplus equal to the difference between their willingness to pay and the market price. Therefore, the consumer surplus in the market is $31.50 - $6.00*5 = $17.50.

Question 18

Consumer surplus equals the:

Accepted Answer

Consumer surplus is the difference between the value that consumers place on a good or service and the amount they actually pay for it. Therefore, it is calculated as the value to buyers (what they are willing to pay) less the amount paid by buyers (the market price).

Question 19

The area below a demand curve and above the price measures:

Accepted Answer

The area below a demand curve and above the price measures consumer surplus, which represents the difference between the maximum price a consumer is willing to pay for a good and the price they actually pay. This surplus is generated when a consumer is able to purchase a good for a lower price than they were willing to pay, resulting in extra utility or satisfaction.

Question 20

Graph 7-2
 
-According to Graph 7-2, area C represents:

Accepted Answer

Area C represents the consumer surplus gained by new consumers who enter the market when the price falls from P₂ to P₁. This is shown by the difference between the demand curve (D1) and the price line (P₁).

Quiz 7: Consumers, Producers and the Efficiency of Markets

Consumer surplus is the:

Graph 7-1 -Refer to Graph 7-1. What area represents consumer surplus when the price is P1?

Graph 7-1 -Refer to Graph 7-1. What area represents producer surplus when the price is P1?

Other things being equal, if the price of a good falls, the consumer surplus:

Graph 7-2 -Refer to Graph 7-2. At the higher price P2, consumer surplus is:

Table 7-1 This table refers to five possible buyers' willingness to pay for good Z. -Refer to Table 7-1. If the price of good Z is $9.99, who will not purchase the good?