Question 1

At Nick's Bakery,the cost to make homemade chocolate cake is $3 per cake.As a result of selling three cakes,Nick experiences a producer surplus in the amount of $19.50.Nick must be selling his cakes for
A) $6.50 each.
B) $7.50 each.
C) $9.50 each.
D) $10.50 each.

Accepted Answer

To solve this problem, we need to use the concept of producer surplus, which is the difference between the price a seller receives and the cost to produce. In this case, we know that the cost to produce one chocolate cake is $3.

Let's assume that Nick sells each cake for $x. Then, his total revenue from selling three cakes is 3x.

From the problem statement, we know that Nick experiences a producer surplus of $19.50. This means that his total revenue exceeds his total cost of production by $19.50.

Using this information, we can set up an equation:

3x - 3(3) = 19.50

Simplifying, we get:

3x - 9 = 19.50

Adding 9 to both sides:

3x = 28.50

Dividing by 3:

x = 9.50

Therefore, Nick must be selling his cakes for $9.50 each to achieve a producer surplus of $19.50 after selling three cakes.

Question 2

Consumer surplus is a good measure of economic welfare if policymakers want to
A) maximize total benefit.
B) minimize deadweight loss.
C) respect the preferences of sellers.
D) respect the preferences of buyers.

Accepted Answer

Consumer surplus measures the difference between what consumers are willing to pay for a good or service and what they actually pay. This indicates the value that consumers receive from the purchase and reflects their preferences. Therefore, if policymakers want to respect the preferences of buyers, consumer surplus is a good measure of economic welfare.

Question 3

Cost is a measure of the
A) seller's willingness to sell.
B) seller's producer surplus.
C) producer shortage.
D) seller's willingness to buy.

Accepted Answer

Cost is a reflection of the seller's willingness to sell, as it represents the minimum price at which they are willing to provide a good or service.

Question 4

If Gina sells a shirt for $40,and her producer surplus from the sale is $32,her cost must have been
A) $72.
B) $32.
C) $8.
D) We would have to know the consumer surplus in order to make this determination.

Accepted Answer

Producer surplus is the difference between the price at which a good or service is sold and the cost of producing it. Therefore, if Gina's producer surplus is $32 and she sold the shirt for $40, her cost must have been $40 - $32 = $8.

Question 5

A seller is willing to sell a product only if the seller receives a price that is at least as great as the
A) seller's producer surplus.
B) seller's cost of production.
C) seller's profit.
D) average willingness to pay of buyers of the product.

Accepted Answer

The seller will only sell the product if they are able to cover their cost of production. If the price offered by buyers is lower than the cost of production, the seller would lose money by selling the product. Therefore, B is the correct answer. A, C, and D are not necessarily indicative of the seller's minimum acceptable price.

Question 6

Tom tunes pianos in his spare time for extra income.Buyers of his service are willing to pay $155 per tuning.One particular week,Tom is willing to tune the first piano for $120,the second piano for $125,the third piano for $140,and the fourth piano for $160.Assume Tom is rational in deciding how many pianos to tune.His producer surplus is
A) $95.
B) $80.
C) $75.
D) $60.

Accepted Answer

To maximize producer surplus, Tom should tune all four pianos since buyers are willing to pay more than his cost for each tuning. The total cost for tuning all four pianos is $545 (120+125+140+160) and the total revenue generated would be $620 (155 x 4). Therefore, the producer surplus would be $75 ($620 - $545).

Question 7

Anita sharpens knives in her spare time for extra income.Buyers of her service are willing to pay $3.50 per knife for as many knives as Anita is willing to sharpen.On a particular day,she is willing to sharpen the first knife for $2.00,the second knife for $2.50,the third knife for $3.00,and the fourth knife for $3.50.Assume Anita is rational in deciding how many knives to sharpen.Her producer surplus is
A) $3.50.
B) $3.00.
C) $2.00.
D) $0.50.

Accepted Answer

Anita is rational, meaning she will continue to sharpen knives as long as the price she receives for each knife is greater than or equal to the cost to sharpen that knife. 
Her costs to sharpen each knife are:
- First knife: $2.00
- Second knife: $2.50
- Third knife: $3.00
- Fourth knife: $3.50
Buyers are willing to pay $3.50 per knife, so Anita will continue to sharpen knives until the cost of the next knife is greater than $3.50. Therefore, she will sharpen three knives, as the cost of the fourth knife exceeds the price buyers are willing to pay. 
Her total revenue would be $10.50 (3 knives x $3.50 per knife). 
Her producer surplus is the difference between her total revenue and her costs to produce:
$10.50 (total revenue) - $7.50 (total costs of sharpening 3 knives) = $3.00.

Question 8

A supply curve can be used to measure producer surplus because it reflects
A) the actions of sellers.
B) quantity supplied.
C) sellers' costs.
D) the amount that will be purchased by consumers in the market.

Accepted Answer

A supply curve represents the relationship between the quantity of a product that sellers are willing to produce and the price of the product. This means that the curve reflects the costs associated with producing and supplying the good. Therefore, measuring the area above the supply curve and below the market price can give an estimate of the producer surplus. The higher the market price above the minimum supply price (which is represented by the supply curve), the greater the producer surplus.

Question 9

Ivana produces cookies.Her production cost is $6 per dozen.She sells the cookies for $8 per dozen.Her producer surplus per dozen cookies is
A) $2.
B) $6.
C) $8.
D) $14.

Accepted Answer

Producer surplus is calculated as the difference between the selling price and the production cost. Here, it is $8 - $6 = $2 per dozen cookies.

Question 10

Ronnie operates a lawn-care service.On each day,the cost of mowing the first lawn is $10,the cost of mowing the second lawn is $12,and the cost of mowing the third lawn is $15.His producer surplus on the first three lawns of the day is $53.If Ronnie charges all customers the same price for lawn mowing,that price is
A) $25.
B) $30.
C) $36.
D) $45.

Accepted Answer

The producer surplus is the difference between the price Ronnie charges and the cost of mowing the lawns. Let's call the price Ronnie charges P.

For the first lawn, Ronnie's producer surplus is P - $10. 
For the second lawn, Ronnie's producer surplus is P - $12. 
For the third lawn, Ronnie's producer surplus is P - $15.

So Ronnie's total producer surplus for the first three lawns is (P - $10) + (P - $12) + (P - $15) = 3P - $37.

We know that this is equal to $53, so:

3P - $37 = $53

3P = $90

P = $30

Therefore, Ronnie charges $30 per lawn mowing.

Question 11

Justin builds fences for a living.Justin's out-of-pocket expenses (for wood,paint,etc.)plus the value that he places on his own time amount to his
A) producer surplus.
B) producer deficit.
C) cost of building fences.
D) profit.

Accepted Answer

Justin's out-of-pocket expenses plus the value he places on his own time make up the cost of building fences. This cost is subtracted from the revenue he earns from building the fences to determine his profit. However, since the question only asks about his costs, the correct answer is C.

Question 12

Donald produces nails at a cost of $200 per ton.If he sells the nails for $350 per ton,his producer surplus per ton is
A) $150.
B) $200.
C) $350.
D) $550.

Accepted Answer

Producer surplus is the difference between the price at which a producer sells a good and the minimum price they would be willing to accept for that good. In this case, Donald's cost of producing nails is $200 per ton and he sells them for $350 per ton. Therefore, his producer surplus per ton is $350 - $200 = $150.

Question 13

A seller's willingness to sell is
A) measured by the seller's cost of production.
B) related to her supply curve, just as a buyer's willingness to buy is related to his demand curve.
C) less than the price received if producer surplus is a positive number.
D) All of the above are correct.

Accepted Answer

The answer of A seller's willingness to sell is
A) measured...

Question 14

David tunes pianos in his spare time for extra income.Buyers of his service are willing to pay $135 per tuning.One particular week,David is willing to tune the first piano for $115,the second piano for $125,the third piano for $140,and the fourth piano for $175.Assume David is rational in deciding how many pianos to tune.His producer surplus is
A) $-15.
B) $20.
C) $30.
D) $75.

Accepted Answer

To maximize his producer surplus, David would want to tune as many pianos as possible without the cost of tuning exceeding the revenue earned. In this case, he should tune all four pianos since the total cost is below the total revenue:

$115 + $125 + $140 + $175 = $555 (total cost)
$135 x 4 = $540 (total revenue)

His producer surplus would be the revenue earned minus the cost incurred:

$540 - $555 = -$15

However, since the question asks for David's producer surplus and not profit, we take the absolute value of -$15 to get $15, which is equal to the difference between the total revenue and the lowest cost option (which is tuning only one piano for $115):

$135 x 1 = $135 (revenue from tuning one piano)
$115 (cost of tuning one piano)
$135 - $115 = $20

So David's producer surplus is $20 from tuning the additional three pianos beyond the first one. Thus, the best choice is C.

Question 15

Caroline sharpens knives in her spare time for extra income.Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen.On a particular day,she is willing to sharpen the first knife for $2.00,the second knife for $2.25,the third knife for $2.75,and the fourth knife for $3.50.Assume Caroline is rational in deciding how many knives to sharpen.Her producer surplus is
A) $0.95.
B) $1.15.
C) $1.30.
D) $1.85.

Accepted Answer

Caroline's producer surplus can be calculated by finding the difference between the price the buyers are willing to pay and the cost Caroline incurs for sharpening the knives.

For the first knife, Caroline incurs a cost of $2.00 and earns a producer surplus of $0.95 ($2.95 - $2.00).

For the second knife, Caroline incurs a cost of $2.25 and earns a producer surplus of $0.70 ($2.95 - $2.25).

For the third knife, Caroline incurs a cost of $2.75 and earns a producer surplus of $0.20 ($2.95 - $2.75).

For the fourth knife, Caroline incurs a cost of $3.50 and earns a producer surplus of -$0.55 ($2.95 - $3.50).

Since Caroline is rational in deciding how many knives to sharpen, she will stop at the point where her producer surplus is zero or negative. As we can see, her producer surplus turns negative for the fourth knife. Therefore, Caroline will only sharpen three knives, giving her a total producer surplus of $1.85 ($0.95 + $0.70 + $0.20).

Thus, the best choice is D.

Question 16

Producer surplus is
A) measured using the demand curve for a good.
B) always a negative number for sellers in a competitive market.
C) the amount a seller is paid minus the cost of production.
D) the opportunity cost of production minus the cost of producing goods that go unsold.

Accepted Answer

Producer surplus is the difference between the price a seller receives and the minimum amount they are willing to accept for their product (i.e. the cost of production). Therefore, it is the amount a seller is paid minus the cost of production.

Question 17

When policymakers are considering a particular action,they can use consumer surplus as a(n)
A) objective measure of the benefits to buyers as determined by policymakers.
B) measure of the benefits to buyers as the buyers perceive them.
C) potentially flawed measure of the benefits to buyers if the buyers are not rational.
D) Both b) and c) are correct.

Accepted Answer

Consumer surplus is a measure of the benefits to buyers as they perceive them, which is subjective and may differ from objective measures. However, it is also potentially flawed if buyers are not rational or if they have imperfect information. Therefore, both options b) and c) are correct, implying that policymakers should use consumer surplus cautiously and consider other factors as well.

Question 18

A seller's opportunity cost measures the
A) value of everything she must give up to produce a good.
B) amount she is paid for a good minus her cost of providing it.
C) consumer surplus.
D) out of pocket expenses to produce a good but not the value of her time.

Accepted Answer

Opportunity cost is the value of the next best alternative forgone, or everything that must be given up to produce a good. In the case of a seller, this would include the cost of resources and factors of production, such as time, that could have been used for other purposes.

Question 19

Producer surplus measures the
A) benefits to sellers of participating in a market.
B) costs to sellers of participating in a market.
C) price that buyers are willing to pay for sellers' output of a good or service.
D) benefit to sellers of producing a greater quantity of a good or service than buyers demand.

Accepted Answer

Producer surplus is the difference between the market price and the minimum price at which producers are willing to supply a given quantity of a good or service. Therefore, it measures the benefit to sellers of participating in a market, and not the costs or the price that buyers are willing to pay. It also does not measure the benefit of producing a greater quantity than buyers demand, as this would lead to a decrease in producer surplus.

Question 20

Economists normally assume people's preferences should be
A) respected.
B) adjusted.
C) overruled.
D) ignored.

Accepted Answer

Economists base their analysis on the choices and behaviors of individuals, which are driven by their preferences. Therefore, economists assume that people's preferences should be respected and accepted as a fundamental aspect of individual decision-making.

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

At Nick's Bakery,the cost to make homemade chocolate cake is $3 per cake.As a result of selling three cakes,Nick experiences a producer surplus in the amount of $19.50.Nick must be selling his cakes for

Consumer surplus is a good measure of economic welfare if policymakers want to

Cost is a measure of the

If Gina sells a shirt for $40,and her producer surplus from the sale is $32,her cost must have been

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

A supply curve can be used to measure producer surplus because it reflects

Ivana produces cookies.Her production cost is $6 per dozen.She sells the cookies for $8 per dozen.Her producer surplus per dozen cookies is

Justin builds fences for a living.Justin's out-of-pocket expenses (for wood,paint,etc.) plus the value that he places on his own time amount to his

Donald produces nails at a cost of $200 per ton.If he sells the nails for $350 per ton,his producer surplus per ton is

A seller's willingness to sell is

Producer surplus is

When policymakers are considering a particular action,they can use consumer surplus as a(n)

A seller's opportunity cost measures the

Producer surplus measures the

Economists normally assume people's preferences should be