Question 1

Assume a consumer has a horizontal demand curve for a product.His consumer surplus from buying the product

Accepted Answer

A horizontal demand curve indicates that the consumer is willing to purchase any quantity of the product at a fixed price. This means there is no difference between the price they are willing to pay and the market price, resulting in a consumer surplus of zero.

Question 2

Market consumer surplus

Accepted Answer

Market consumer surplus is the difference between what consumers are willing to pay for a good or service (represented by the demand curve) and what they actually pay (the market price). This difference multiplied by the quantity bought gives us the total consumer surplus for the market. Therefore, option A is the correct answer as it precisely explains the concept of market consumer surplus.

Question 3

Mister Jones was selling his house.The asking price was $220,000,and Jones decided he would take no less than $200,000.After some negotiation,Mister Smith purchased the house for $205,000.Smith's consumer surplus is

Accepted Answer

The answer of Mister Jones was selling his house.The asking...

Question 4

Government intervention in a perfectly competitive market

Accepted Answer

In a perfectly competitive market, the market forces of supply and demand allocate resources efficiently, such that economic well-being is maximized. However, government intervention in such a market can introduce inefficiencies, such as distortions in prices or reduced incentives for firms to innovate and compete. As a result, the intervention can ultimately reduce economic well-being for both producers and consumers.

Question 5

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).If the price were zero,consumer surplus equals

Accepted Answer

The answer of 
-The above figure shows the market demand...

Question 6

In the long run,firms in a competitive market

Accepted Answer

In the long run, firms in a competitive market earn zero economic profit. This is because in a perfectly competitive market, there are no barriers to entry or exit, so firms can easily enter or exit the market depending on their profit or loss. As such, in the long run, the market price will adjust so that firms only earn enough revenue to cover their costs (including opportunity costs), resulting in zero economic profit.

Question 7

The long-run supply curve in a competitive market is upward-sloping.

Accepted Answer

The shape of the long-run supply curve will depend on how similar the firms are and on the relationship between factor prices and total industry output.

Question 8

Consumer surplus

Accepted Answer

Consumer surplus is the measure of the difference between what a consumer is willing to pay and what they actually pay for a good or service. Therefore, option C is the correct answer. Option A refers to producer surplus, and option B is not a valid definition of consumer surplus. Option D is incorrect as consumer surplus can exist in both the short run and the long run.

Question 9

Consumers seek to

Accepted Answer

Consumers seek to maximize expected consumer surplus, which is the difference between the maximum price they are willing to pay for a good and the actual price they pay. Consumers want to get the most value for their money, rather than simply trying to maximize their profits or expenditures. While consumers do seek choice, it is not the primary goal in their decision-making process.

Question 10

Currently,when a consumer purchases a "green" automobile,the U.S.government gives the consumer a rebate.When the rebate program expires,we would expect

Accepted Answer

When the rebate program expires, the effective price of "green" automobiles for consumers increases, as they no longer receive the rebate. This typically leads to a decrease in consumer surplus because consumers are either paying more for the same product or some consumers are priced out of the market, reducing the overall satisfaction or benefit consumers derive from purchasing "green" automobiles.

Question 11

If a market is not perfectly competitive,then government intervention

Accepted Answer

When a market is not perfectly competitive, government intervention may be necessary to correct market failures, such as externalities, information asymmetries, or public goods. In some cases, intervention can increase economic well-being by promoting competition, reducing negative externalities, or providing public goods. However, in other cases, intervention may decrease economic well-being by distorting market outcomes, creating inefficiencies, or reducing incentives to innovate and invest. Therefore, the effectiveness and efficiency of government intervention depend on the specific circumstances of the market and the type of intervention used.

Question 12

A consumer's marginal willingness to pay

Accepted Answer

Marginal willingness to pay is the maximum price a consumer is willing to pay for one additional unit of a good or service. It is equal to the marginal value to the consumer of the last unit of output, which means that it represents the additional benefit the consumer receives from consuming one more unit of the good. Therefore, choice B is the correct answer. Choices A and C may be confusing because they involve price, but marginal willingness to pay is not necessarily equal to the price the consumer is willing to pay. Choice D is not correct because the first derivative of the demand curve represents the slope of the curve, not the marginal willingness to pay.

Question 13

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).The current price is $0.35 per minute.If the price were to increase by ten cents per minute,consumer surplus would

Accepted Answer

When the price increases, the area representing consumer surplus decreases. The decrease in consumer surplus can be calculated as the area of the triangle formed by the price increase, which is 1/2 * base * height. The base is the quantity change due to the price increase, and the height is the price increase itself. Without specific numbers from the figure, the exact calculation can't be provided, but the principle is that consumer surplus decreases as prices increase, and option B correctly indicates a decrease in consumer surplus by a specific amount.

Question 14

Mary purchased a stuffed animal toy for $5.After a few weeks,someone offered her $100 for the toy.Mary refused.One can conclude that Mary's consumer surplus from the toy is

Accepted Answer

Mary's consumer surplus is the difference between the amount she was willing to pay for the toy ($5) and the amount she could have sold it for ($100), which is at least $95. Choosing option C would be incorrect because Mary did not actually sell the toy for $100, so that cannot be counted as part of her consumer surplus. Option D is also incorrect because that would assume Mary sold the toy for $105, which she did not.

Question 15

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).If the price were $2.50,consumer surplus equals

Accepted Answer

The answer of 
-The above figure shows the market demand...

Question 16

Producer surplus equals

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. All the given options (A, B, C) are different ways of conceptualizing this difference, taking into account costs, revenues, and profits.

Question 17

Producer surplus is equal to

Accepted Answer

Producer surplus is the difference between the price of a good and its marginal cost of production. It is the amount that a producer benefits by selling a good at a price that is higher than the cost of producing it. Choice A is incorrect because the area under the supply curve only measures the total revenue that a producer receives, not the surplus. Choice B is incorrect because it refers to the average cost, not the marginal cost. Choice D is incorrect because it refers to the firm's profit, which includes the effect of fixed costs, not just the surplus.

Question 18

-The above figure shows the market demand curve for telecommunication while driving one's car (time spent on the car phone).At the current price of $0.35 per minute,consumer surplus equals

Accepted Answer

Consumer surplus is the area between the demand curve and the price level, up to the quantity demanded. At $0.35 per minute, the quantity demanded is 3500 minutes (from the demand curve, not shown in the question). The area of the triangle representing consumer surplus is 1/2 * base * height = 1/2 * 3500 * $0.53 (difference between the highest price someone is willing to pay, $0.88, and the current price, $0.35). This calculation equals $924.50.

Question 19

If the shut down rule,p < AVC,is the same in the short run and the long run,explain why the shutdown prices may be different.

Accepted Answer

The answer of If the shut down rule,p < AVC,is...

Question 20

Producer surplus

Accepted Answer

Producer surplus is the difference between the price a producer receives for a good or service and the minimum price they would have been willing to accept for it. It represents the benefit or gain that a producer receives from engaging in trade. It is not related to the opportunity cost of the firm or their long-term production decisions.

Quiz 8: Competitive Firms and Markets