Question 1

An increase in price increases consumer surplus.

Accepted Answer

An increase in price decreases consumer surplus as consumers have to pay more for the same product or service. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. When the price increases, the consumer surplus decreases.

Question 2

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

Accepted Answer

When a binding price floor is imposed, it results in a surplus of supply and a shortage of demand. This means that some producers are left with unsold goods, which results in deadweight loss and a decrease in consumer surplus.

Question 3

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, the price reduction benefits both existing buyers and new buyers, leading to an increase in consumer surplus. Therefore, both statement (1) and (2) are true.

Question 4

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

Accepted Answer

This is the correct definition of producer surplus.

Question 5

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 6

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 7

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 8

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

Accepted Answer

A decrease in demand will cause a decrease in producer surplus since the producer is now able to sell less of their product at a lower price. This means that they will receive less revenue for each unit sold, leading to a decrease in their overall surplus.

Question 9

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 a consumer places on a good (in this case, $50) and the price they pay for it (in this case, $40). Therefore, Darby's consumer surplus is $10 ($50-$40).

Question 10

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 11

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 12

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, which can result in a surplus of supply and a shortage of demand. This means that consumers may end up paying more for the same product, and some may not be able to purchase it at all, leading to a decrease in consumer surplus.

Question 13

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 tend to seek out the best deal or the lowest price for a product. Therefore, producers who can offer their product at a lower price compared to their competitors are likely to attract more sales and gain a larger market share.

Question 14

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

Accepted Answer

An increase in demand will lead to an increase in the equilibrium price, resulting in higher producer surplus (the difference between the market price and the minimum price the producer is willing to accept). As demand shifts to the right, the producer is able to sell more units at a higher price, increasing their revenue and surplus.

Question 15

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

Accepted Answer

When the supply of a good or service increases, the market price will decrease, leading to a wider range of consumer choices at lower prices. This will allow consumers to gain more satisfaction from their purchases, resulting in an increase in consumer surplus.

Question 16

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 true according to the Law of Supply, which states that producers will offer more of a good or service for sale as its price increases, and will offer less of it for sale as its price decreases. The opportunity cost of producing a good is the cost of the next best alternative that must be given up in order to produce it. Therefore, if the price offered for a good is higher than the opportunity cost of producing it, a seller will be willing to sell it.

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

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 the consumer is willing to pay (in this case, $450) and the actual price they pay. Therefore, if Rosa's consumer surplus is $175, she paid $450 - $175 = $275 for the hockey tickets. This means that the price of the tickets is $275, not $625.

Question 19

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

Accepted Answer

To calculate consumer surplus, we need to compare the maximum amount that a consumer is willing to pay for a good or service (willingness to pay) with the actual price paid. The difference between these two values represents the consumer surplus.

Question 20

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).

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

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.

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.

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

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

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

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

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 demand will always increase consumer surplus.

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

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

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 demand will cause an increase in producer surplus.

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

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.

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

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

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

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