Question 1

All else equal, an increase in demand will cause an increase in producer surplus.

Accepted Answer

An increase in demand shifts the demand curve to the right, leading to higher equilibrium price and quantity. As a result, producers can charge a higher price for their goods and services, which increases their producer surplus.

Question 2

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Accepted Answer

In a competitive market, consumers are price-sensitive and tend to choose products that are offered at the lowest price. To attract customers and gain market share, producers must lower their prices or offer sales and promotions. This creates competition among producers, and those who can supply the product at the lowest price are likely to earn more sales.

Question 3

Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product.

Accepted Answer

This statement is based on the principle of rational decision making by a seller. The opportunity cost of producing a product is the value of the next best alternative forgone, and if the price offered exceeds this cost, the seller would be willing to sell.

Question 4

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 5

An increase in price increases consumer surplus.

Accepted Answer

An increase in price reduces consumer surplus because consumers are now paying more for the same good or service, resulting in a decrease in the difference between what they are willing to pay and what they actually pay. This means they are receiving less surplus from the transaction.

Question 6

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

Accepted Answer

When a price floor is imposed, it creates a situation where the market price is higher than the equilibrium price. This results in a decrease in the quantity demanded and an increase in the quantity supplied, leading to a surplus of goods. As a result, the consumer surplus decreases in a market with a price floor, since buyers have to pay more for the same quantity of goods.

Question 7

Producer surplus is the amount a seller is paid minus the cost of production.

Accepted Answer

This is the definition of producer surplus.

Question 8

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

Accepted Answer

When a price floor is imposed, the price cannot fall below a certain level. This leads to an increase in producer surplus, as they can charge a higher price. However, it also leads to a decrease in consumer surplus, as consumers are forced to pay more for the same product. Therefore, the statement is true.

Question 9

All else equal, a decrease in demand will cause an increase in producer surplus.

Accepted Answer

A decrease in demand will lead to a decrease in producer surplus, as producers will have to lower their prices in order to sell the same quantity of goods. This will result in a smaller difference between the price at which they sell their products and the cost of producing those products, thereby reducing their surplus.

Question 10

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to sell a good and the actual price they receive. In this case, Jake's producer surplus would be $35 (selling price of $40 minus production cost of $5).

Question 11

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 what a consumer is willing to pay and what they actually pay. Therefore, if Rosa is willing to pay $450 and has a consumer surplus of $175, she paid $450 - $175 = $275 for the tickets.

Question 12

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 value a consumer places on a good and the actual price they pay. In this case, Darby values the soccer ball at $50 but pays $40, so her consumer surplus is $10 ($50 - $40 = $10).

Question 13

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

Accepted Answer

An increase in supply, all else equal, will result in a decrease in price. This decrease in price will lead to an increase in consumer surplus as consumers are able to purchase the same good or service at a lower price, resulting in greater satisfaction and value for their money.

Question 14

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

Accepted Answer

Her consumer surplus is $10, because consumer surplus is the difference between what a consumer is willing to pay ($50) and the actual price paid ($40).

Question 15

Producer surplus is the cost of production minus the amount a seller is paid.

Accepted Answer

Producer surplus is the amount a seller is paid minus the cost of production.

Question 16

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

Accepted Answer

Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price they pay. Therefore, in order to calculate consumer surplus, we need to know both the consumer's willingness to pay and the price they actually pay.

Question 17

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 18

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 19

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 that reduces market price leads to a larger quantity of goods being available for consumption. Existing buyers can purchase the same product at a lower price, which increases their consumer surplus. Additionally, the lower price may make the product more affordable for new buyers to enter the market, resulting in further consumer surplus. Therefore, both (1) and (2) are true.

Question 20

At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.

Accepted Answer

The price given by the supply curve at any quantity represents the cost of the marginal seller, which is the cost of the highest-cost seller willing to sell at that price, not the lowest-cost seller.

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

All else equal, an increase in demand will cause an increase in producer surplus.

In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

Each seller of a product is willing to sell as long as the price he or she can receive is greater than the opportunity cost of producing the product.

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

An increase in price increases consumer surplus.

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

Producer surplus is the amount a seller is paid minus the cost of production.

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

All else equal, a decrease in demand will cause an increase in producer surplus.

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.

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

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

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 $90.

Producer surplus is the cost of production minus the amount a seller is paid.

In order to calculate consumer surplus in a market, we need to know willingness to pay and price.

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

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

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.

At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.