Question 1

The difference between market price and the price at which sellers would be willing to supply the product is called:

Accepted Answer

Producer surplus is the difference between the market price and the price at which sellers would be willing to supply the product.

Question 2

Producer surplus is the area:

Accepted Answer

Producer surplus is the difference between the amount producers are willing to accept for a good or service and the amount they actually receive, which is represented by the area below the market price and above the supply curve.

Question 3

Producer surplus is the:

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to sell a product and the price at which the product actually sells. This means that producer surplus is the amount of extra profit that producers make from selling their products at a higher price than they are willing to accept. Therefore, option A is the correct choice.

Question 4

Consumer surplus is shown graphically as the area:

Accepted Answer

Consumer surplus is the area under the demand curve and above the market price, representing the difference between what consumers are willing to pay and what they actually pay.

Question 5

If you are willing to sell your old bicycle for $30, but someone offers you $40 for it, the results of the transaction would yield:

Accepted Answer

Producer surplus is the difference between what a seller is willing to accept for a good and what they actually receive. In this case, the seller was willing to accept $30 but received $40, resulting in a $10 producer surplus. Consumer surplus is not determined with the given information.

Question 6

(Figure: Determining Surplus) In the graph, which shape represents consumer surplus?

Accepted Answer

The answer of (Figure: Determining Surplus) In the graph, which...

Question 7

All else equal, consumers prefer market outcomes with:

Accepted Answer

Consumers prefer market outcomes with more consumer surplus because it means they are getting more value for their money. More consumer surplus means that consumers are able to buy goods and services at a lower price or are able to buy more with the same budget, which gives them more satisfaction.

Question 8

Suppose the market price is $5. There are three consumers in the market. The consumer who purchases the first unit of output is willing to pay $12; the consumer purchasing the second unit of output is willing to pay $8; and the consumer buying the third unit of output is willing to pay $7. Total consumer surplus across these three consumers is:

Accepted Answer

The answer of Suppose the market price is $5. There...

Question 9

If a consumer is willing to pay $20 for a pizza, but the price of the pizza is $10, then the amount of consumer surplus resulting from the customer's purchase of that pizza would be:

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. In this case, the consumer is willing to pay $20 but pays $10, resulting in a consumer surplus of $10.

Question 10

Producer surplus is shown graphically as the area:

Accepted Answer

Producer surplus is the area above the supply curve and below the market price, representing the difference between what producers are willing to accept and what they actually receive.

Question 11

Suppose the actual price for good A is $20. John is willing to pay $30, Susie is willing to pay $28, Joseph is willing to pay $25, Jessica is willing to pay $23, and Jeremy is willing to pay $21. What is total consumer surplus?

Accepted Answer

Total consumer surplus is the sum of the differences between what consumers are willing to pay and the actual price. 
John's consumer surplus = $10 ($30-$20) 
Susie's consumer surplus = $8 ($28-$20) 
Joseph's consumer surplus = $5 ($25-$20) 
Jessica's consumer surplus = $3 ($23-$20) 
Jeremy's consumer surplus = $1 ($21-$20) 
Total consumer surplus = $10+$8+$5+$3+$1= $27 
Therefore, the best choice is (C) $27.

Question 12

The difference between what the market would be willing to pay and the market price is:

Accepted Answer

Consumer surplus is the difference between the price a consumer is willing to pay for a good or service and the actual market price they pay. This is the result of consumers being able to purchase a good or service at a lower price than what they were willing to pay, which creates a surplus value for them.

Question 13

(Figure: Determining Surplus) In the graph, which shape represents producer surplus?

Accepted Answer

The answer of (Figure: Determining Surplus) In the graph, which...

Question 14

Mike really enjoys Bitter Sweet coffee and is willing to pay $10 per cup. The retail price is $3. Which of the following is correct?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. Mike is willing to pay $10 but pays $3, so his consumer surplus is $7 per cup.

Question 15

When markets are efficient:

Accepted Answer

When markets are efficient, the equilibrium price and quantity reflect the true supply and demand for the good or service being traded. At this point, the sum of consumer and producer surplus is maximized, meaning that both parties are able to obtain the greatest benefit possible from the market transaction. Therefore, B is the correct choice. A is incorrect because minimizing total surplus would indicate a market failure, not efficiency. C and D are incorrect because one party's surplus cannot be maximized while the other's is minimized in an efficient market - both parties should benefit.

Question 16

Suppose the market price is $5. The producer who sells the first unit of output has a willingness-to-sell equal to $1; the producer who sells the second unit of output has a willingness-to-sell equal to $2; and the producer who sells the third unit of output has a willingness-to-sell equal to $4. Total producer surplus across these three producers is:

Accepted Answer

Producer surplus is the difference between the price that producers receive and the cost of production. In this case, the first producer sells at a price of $5 and is willing to sell at $1, so their producer surplus is $4. The second producer sells at a price of $5 and is willing to sell at $2, so their producer surplus is $3. The third producer sells at a price of $5 and is willing to sell at $4, so their producer surplus is $1. Therefore, the total producer surplus across all three producers is $4 + $3 + $1 = $8.

Question 17

The total of consumer surplus plus producer surplus is maximized at:

Accepted Answer

At the market equilibrium price, the quantity supplied equals the quantity demanded, maximizing the total welfare or surplus in the market, which is the sum of consumer and producer surplus.

Question 18

Suppose the market price is $5. The buyer who buys the first unit of output has a willingness-to-buy equal to $10; the buyer who buys the second unit of output has a willingness-to-buy equal to $9; and the buyer who buys the third unit of output has a willingness-to-buy equal to $8. Total consumer surplus is:

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. For the first unit, the surplus is $10 - $5 = $5; for the second unit, $9 - $5 = $4; for the third unit, $8 - $5 = $3. Total consumer surplus is $5 + $4 + $3 = $12.

Question 19

In a market, consumers get extra benefits called _____, while businesses receive extra benefits known as _____.

Accepted Answer

Consumer surplus is the extra benefit that consumers receive in a market by paying a price lower than they are willing to pay. Producer surplus, on the other hand, is the extra benefit that businesses receive by selling a product at a price higher than the cost of producing it. Therefore, the correct option is B where "consumer surplus; producer surplus" are the benefits received by consumers and businesses, respectively.

Question 20

On a graph with a demand curve, consumer surplus is the area:

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual market price. Therefore, on a graph with a demand curve, consumer surplus is represented by the area above the market price and below the demand curve.

Quiz 4: Markets and Government