Question 1

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 value that a consumer places on a good or service (in this case, $50) and the price that they actually paid for it ($40). Therefore, Darby's consumer surplus would be $10 ($50 - $40).

Question 2

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 maximum price a consumer is willing to pay for a good/service and the actual price they pay in the market. Therefore, we need to know both the willingness to pay and the price to calculate consumer surplus.

Question 3

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

Accepted Answer

When the government imposes a binding price floor in a market, the price of the good or service will be set above the equilibrium price, which will result in a decrease in the quantity demanded and an increase in the quantity supplied. This will lead to a surplus of the good or service and a reduction in consumer surplus as some consumers will be priced out of the market.

Question 4

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 5

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

When there is an increase in supply that reduces market price, existing buyers receive a greater consumer surplus as they are able to purchase the same product at a lower price. Additionally, with the lower price, new buyers who were previously priced out of the market are now able to enter and purchase the product, increasing overall consumer surplus.

Question 6

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

Accepted Answer

This is the correct definition of producer surplus, which is the difference between the price a seller receives for a good and the minimum amount they would have been willing to accept for producing and selling that good.

Question 7

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 a basic principle of economic theory known as the "law of supply." It means that sellers will only produce and sell a product if they can make a profit or at least cover their costs.

Question 8

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 have a wide range of choices, and will generally choose the product that offers the best value. This often means choosing the product with the lowest price, so producers who can supply the product at a lower cost have an advantage in the market.

Question 9

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

Accepted Answer

An increase in supply will cause a decrease in price, which in turn will increase consumer surplus. This is because some consumers will be able to buy the good or service at a lower price than they would have been willing to pay. However, if the increase in supply is not met with an increase in demand, it may not have a significant effect on consumer 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 what a producer is willing to accept for a good versus what they actually receive. In this case, it's $40 (selling price) - $5 (cost) = $35.

Question 11

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 12

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. In this case, Rosa is willing to pay $450 and has a consumer surplus of $175, so she ends up paying $450 - $175 = $275 for the hockey tickets. Therefore, the price of the tickets cannot be $625.

Question 13

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 minimum legal price is above the market equilibrium price. This creates a surplus of supply and a shortage of demand. As a result, the quantity demanded decreases, and the consumer surplus decreases because some consumers are unable or unwilling to pay the higher price.

Question 14

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 maximum amount a consumer is willing to pay for a good or service (in this case, $50) and the actual amount paid (in this case, $40). Therefore, the consumer surplus in this scenario would be $10, not $90.

Question 15

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

Accepted Answer

A decrease in demand would lead to a decrease in producer surplus as producers would need to lower their prices in order to sell their goods. This decrease in price would result in a decrease in producer surplus.

Question 16

An increase in price increases consumer surplus.

Accepted Answer

An increase in price decreases consumer surplus. 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. If the price increases, the consumer surplus decreases as the difference between the maximum price they are willing to pay and the actual price narrows.

Question 17

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

Accepted Answer

When demand increases, the market price for the good or service increases as well. This increase in price allows producers to earn a higher profit, which increases their producer surplus.

Question 18

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 19

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.

Question 20

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.

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

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

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

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

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

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.

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

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.

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

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

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

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

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

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.

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

An increase in price increases consumer surplus.

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

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

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

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