Question 1

FIGURE 6-1
 
-Refer to Figure 6-1. What area identifies the producer surplus created when the market price equals P₂?

Accepted Answer

Producer surplus is the difference between the price producers are willing to accept for a good and the price they actually receive. In Figure 6-1, the producer surplus created when the market price equals P₂ is represented by area C + D + F.

Question 2

Harry pays only $15 000 to purchase a new car that he would have been willing to pay as much as $25 000 for. What would an economist say about this situation?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay for a good or service and what they actually pay. In this case, Harry was willing to pay $25,000 but only paid $15,000, so he reaped a consumer surplus of $10,000.

Question 3

Why does producer surplus arise?

Accepted Answer

Producer surplus arises when the market price of a good is higher than the cost of production for the producer. This means that the producer is able to sell the good for a higher price than it cost them to make it, leading to a surplus of profit or "producer surplus".

Question 4

The schedule below represents the willingness of a typical vintner to produce wine in a year. Suppose there are 100 identical producers in the market.
TABLE 6-4
 
-Refer to Table 6-34. If the market price of wine is $20, what is the total producer surplus equal to?

Accepted Answer

Producer surplus is the difference between the price producers receive for a good and the minimum price they are willing to accept. In this case, the market price of wine is $20, and the minimum price producers are willing to accept is $10 (as shown in Table 6-34). Therefore, the producer surplus is $20 - $10 = $10 per unit. Since there are 100,000 units of wine produced, the total producer surplus is $10 x 100,000 = $1,000,000.

Question 5

Which of the following best explains the source of consumer surplus for Good A?

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. In this case, the source of consumer surplus for Good A is that many consumers would be willing to pay more than the market price for some units of the good. This means that they are receiving a benefit by paying less than what they are willing to pay, resulting in consumer surplus.

Question 6

Phil and Lasca have always wanted to take a cruise. Although willing to pay $5000 for a Caribbean cruise for two, they were able to purchase a cruise vacation for two for $3500. What was their total consumer surplus?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay for a good or service and what they actually pay. In this case, Phil and Lasca were willing to pay $5000 but were able to purchase the cruise for $3500, so their consumer surplus is $1500. Therefore, the best choice is B.

Question 7

Why does consumer surplus arise?

Accepted Answer

Consumer surplus arises when consumers value a good or service higher than the price they have to pay to acquire it. This means that they are willing to pay more for the good than the price they actually have to pay. The difference between what they are willing to pay and what they actually pay is the consumer surplus.

Question 8

What is the term for the difference between the value of a good to consumers and its price?

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 price paid. It represents the value that consumers receive beyond what they had to give up. Choices A, B, and C are related to consumer behavior and utility theory but do not specifically address the difference between the value of a good and its price.

Question 9

FIGURE 6-1
 
-Refer to Figure 6-1. What area identifies the consumer surplus created when the market price equals P₂?

Accepted Answer

Consumer surplus is the area above the market price and below the demand curve, so when the market price is P₂, the consumer surplus is represented by areas A, B, and E combined.

Question 10

The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10 000 identical consumers in the community. TABLE 6-3
 
-Refer to Table 6-3. If the market price of wine is $20, what is the total consumer surplus for the community equal to?

Accepted Answer

The answer of The schedule below represents the willingness of...

Question 11

Lance's demand schedule for pizza is indicated below:TABLE 6-2
 
-Refer to Table 6-2. If the current price of pizza is $1.00 per slice, what is Lance's consumer surplus?

Accepted Answer

Lance's consumer surplus is the difference between what he is willing to pay for each slice of pizza and what he actually pays, summed across all the slices he buys. Without the table, we assume Lance's willingness to pay decreases with each additional slice. If the price is $1.00 and he buys until his marginal benefit equals the price, the surplus is the area above the price and below his demand curve up to that quantity. Without specific numbers from Table 6-2, a general explanation is that consumer surplus is typically calculated as the area under the demand curve (or willingness to pay) above the market price, up to the quantity purchased. Since D is the correct choice, it suggests that based on the given willingness to pay and the price of $1.00, Lance's consumer surplus totals $1.50, indicating he derives $1.50 more in value than he pays.

Question 12

Graphically, how is consumer surplus measured?

Accepted Answer

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

Question 13

Ceteris paribus, which of the following will a decrease in the price of a good cause?

Accepted Answer

A decrease in the price of a good, with all other factors being equal (ceteris paribus), typically results in an increase in consumer surplus because consumers are getting the same good for a lower price, which means they are getting more value for their money.

Question 14

The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10 000 identical consumers in the community. TABLE 6-3
 
-Refer to Table 6-3. If the market price of wine is $30, what is the total consumer surplus for the community equal to?

Accepted Answer

The answer of The schedule below represents the willingness of...

Question 15

As the market price of a good falls due to an increase in supply, what happens to consumer surplus?

Accepted Answer

As the market price of a good falls due to an increase in supply, consumers are able to purchase the good at a lower price than before, increasing their consumer surplus. Therefore, option A is correct.

Question 16

Which of the following would lead to the creation of some consumer surplus?

Accepted Answer

Consumer surplus occurs when a consumer pays a price lower than the maximum value that they place on a product or service. In option C, Danette pays $30 for phone service, but it is worth $70 to her, creating a consumer surplus of $40.

Question 17

TABLE 6-1
Henry demands jazz CDs according to the following demand schedule:
 
-Refer to Table 6-1. If the price of jazz CDs equals $15, what is the consumer surplus Henry receives from purchasing jazz CDs?

Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay for a good and what the consumer actually pays. Without the specific details from Table 6-1, we typically calculate consumer surplus by looking at the area above the price level and below the demand curve up to the quantity purchased. Assuming Henry's maximum willingness to pay for the first CD is higher than $15 and decreases for subsequent CDs, and he buys CDs up to the point where his willingness to pay equals $15, the total consumer surplus would be the sum of the differences between his willingness to pay for each CD and the $15 he actually pays. Without the table, we can't calculate the exact figures, but the correct answer is provided as C, $30, based on the information given.

Question 18

TABLE 6-1
Henry demands jazz CDs according to the following demand schedule:
 
-Refer to Table 6-1. If the price of jazz CDs equals $20, what is the consumer surplus Henry receives from purchasing jazz CDs?

Accepted Answer

To find the consumer surplus, we need to calculate the difference between the maximum amount Henry is willing to pay and the actual price he pays. At a price of $20, Henry is willing to pay up to $35 for a jazz CD. Therefore, his consumer surplus is $15 ($35 - $20).

Question 19

The schedule below represents the willingness of a typical vintner to produce wine in a year. Suppose there are 100 identical producers in the market.
TABLE 6-4
 
-Refer to Table 6-4. If the market price of wine is $30, what is the total producer surplus equal to?

Accepted Answer

The total producer surplus is calculated as the area above the supply curve and below the market price. If the market price is $30, the producer surplus is $3,000,000 as given in the table.

Question 20

What does the area between the market price and the supply curve provide a measure of?

Accepted Answer

The area between the market price and the supply curve provides a measure of producer surplus, which is the difference between the price at which producers are willing to supply a good and the market price for that good.

Quiz 6: Market Efficiency and Market Failure

FIGURE 6-1 -Refer to Figure 6-1. What area identifies the producer surplus created when the market price equals P₂?

Harry pays only $15 000 to purchase a new car that he would have been willing to pay as much as $25 000 for. What would an economist say about this situation?

Why does producer surplus arise?

The schedule below represents the willingness of a typical vintner to produce wine in a year. Suppose there are 100 identical producers in the market. TABLE 6-4 -Refer to Table 6-34. If the market price of wine is $20, what is the total producer surplus equal to?

Which of the following best explains the source of consumer surplus for Good A?

Phil and Lasca have always wanted to take a cruise. Although willing to pay $5000 for a Caribbean cruise for two, they were able to purchase a cruise vacation for two for $3500. What was their total consumer surplus?

Why does consumer surplus arise?

What is the term for the difference between the value of a good to consumers and its price?

FIGURE 6-1 -Refer to Figure 6-1. What area identifies the consumer surplus created when the market price equals P₂?

The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10 000 identical consumers in the community. TABLE 6-3 -Refer to Table 6-3. If the market price of wine is $20, what is the total consumer surplus for the community equal to?

Lance's demand schedule for pizza is indicated below:TABLE 6-2 -Refer to Table 6-2. If the current price of pizza is $1.00 per slice, what is Lance's consumer surplus?

Graphically, how is consumer surplus measured?

Ceteris paribus, which of the following will a decrease in the price of a good cause?

The schedule below represents the willingness of a typical consumer to pay for wine in a year. Suppose there are 10 000 identical consumers in the community. TABLE 6-3 -Refer to Table 6-3. If the market price of wine is $30, what is the total consumer surplus for the community equal to?

As the market price of a good falls due to an increase in supply, what happens to consumer surplus?

Which of the following would lead to the creation of some consumer surplus?

TABLE 6-1 Henry demands jazz CDs according to the following demand schedule: -Refer to Table 6-1. If the price of jazz CDs equals $15, what is the consumer surplus Henry receives from purchasing jazz CDs?

TABLE 6-1 Henry demands jazz CDs according to the following demand schedule: -Refer to Table 6-1. If the price of jazz CDs equals $20, what is the consumer surplus Henry receives from purchasing jazz CDs?

The schedule below represents the willingness of a typical vintner to produce wine in a year. Suppose there are 100 identical producers in the market. TABLE 6-4 -Refer to Table 6-4. If the market price of wine is $30, what is the total producer surplus equal to?

What does the area between the market price and the supply curve provide a measure of?