Question 1

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone). If the price were zero, consumer surplus equals

Accepted Answer

Consumer surplus is the area under the demand curve and above the price level. If the price is zero, consumer surplus is the entire area under the demand curve. The total area under the demand curve is given as $1,250.00.

Question 2

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone). At the current price of $0.35 per minute, consumer surplus equals

Accepted Answer

Consumer surplus is calculated as the area of the triangle above the price level and below the demand curve. At a price of $0.35, the quantity demanded is 1,650 minutes (from the graph, not shown in the question). The maximum price consumers are willing to pay (the intercept of the demand curve with the price axis) is not given, but assuming it's where the demand curve starts, we calculate the area of the triangle using the formula (1/2 * base * height). Here, the base is 1,650 minutes, and the height is the difference between the maximum price consumers are willing to pay and the current price ($0.35). Without the exact numbers from the graph, we can't calculate it directly, but the correct answer is given as an option.

Question 3

Assume a consumer has a horizontal demand curve for a product. His consumer surplus from buying the product

Accepted Answer

A horizontal demand curve indicates that the consumer is willing to purchase any quantity of the product at a fixed price. This means there is no difference between the price they are willing to pay and the market price, resulting in a consumer surplus of zero.

Question 4

Currently, when a consumer purchases a "green" automobile, the U.S. government gives the consumer a rebate. When the rebate program expires, we would expect

Accepted Answer

When the rebate program expires, the effective price of "green" automobiles for consumers increases, as they no longer receive the rebate. This typically leads to a decrease in consumer surplus because consumers are either paying more for the same product or some consumers are priced out of the market, reducing the overall satisfaction or benefit consumers derive from purchasing "green" automobiles.

Question 5

Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Smith's consumer surplus is

Accepted Answer

The answer of Mister Jones was selling his house. The...

Question 6

If a market is NOT perfectly competitive, then government intervention

Accepted Answer

Government intervention may increase economic well-being in a market that is not perfectly competitive by correcting market failures, promoting competition, and ensuring consumer protection. However, the effectiveness of government intervention depends on the specific circumstances of the market failure and the policy implemented. Therefore, government intervention is not always justifiable, and it does not guarantee that societal well-being will be maximized. It is also possible that government intervention may result in unintended consequences that decrease economic well-being.

Question 7

Producer surplus

Accepted Answer

Producer surplus is the difference between the price a firm actually receives for its product and the minimum price at which it would be willing to sell the product, thus it represents what a firm gains from trade.

Question 8

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone). If the price were $2.50, consumer surplus equals

Accepted Answer

The answer of 
-The above figure shows the market demand...

Question 9

Consumer surplus

Accepted Answer

Consumer surplus is the difference between what a consumer would be willing to pay for a good and the price they actually paid. It is the additional benefit the consumer receives beyond what they had to pay. Therefore, option C is the correct definition of consumer surplus. Options A and B are incorrect because they involve the producer's cost and price, respectively, and do not take into account the consumer's willingness to pay. Option D is incorrect because consumer surplus can exist in the long run as well.

Question 10

Government intervention in a perfectly competitive market

Accepted Answer

Government intervention in a perfectly competitive market distorts the market and creates inefficiencies, reducing economic well-being. The intervention may create surpluses or shortages, decrease consumer and producer surplus, and increase deadweight loss. The market equilibrium is the most efficient allocation of resources, and government intervention deviates from it.

Question 11

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone). The current price is $0.35 per minute. If the price were to increase by ten cents per minute, consumer surplus would

Accepted Answer

Consumer surplus decreases when the price of a good increases because the area representing consumer surplus on a demand curve is the area above the price level and below the demand curve. An increase in price reduces this area, thus reducing consumer surplus. The specific amount by which consumer surplus decreases depends on the shape of the demand curve and the magnitude of the price increase.

Question 12

Producer surplus equals

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good versus what they actually receive. All the given options (A, B, C) are different ways of conceptualizing this difference, taking into account costs, revenues, and profits.

Question 13

In the long run, firms in a competitive market

Accepted Answer

In the long run, firms in a competitive market tend to earn zero economic profit. This is because in a perfectly competitive market, there are no barriers to entry or exit, so if firms are earning economic profit, new firms will enter the market and drive down prices until profits reach zero. Therefore, firms in a competitive market will earn enough to cover their costs, including opportunity costs, but will not earn additional economic profit.

Question 14

If the shut down rule, p < AVC, is the same in the short run and the long run, explain why the shutdown prices may be different.

Accepted Answer

The answer of If the shut down rule, p <...

Question 15

Producer surplus is equal to

Accepted Answer

Producer surplus is the difference between the price that a producer receives from selling a good and the cost of producing it. Marginal cost represents the cost of producing each additional unit of a good, so the difference between price and marginal cost for all units sold represents the producer's surplus. Choice A is incorrect because the area under the supply curve represents total revenue, not producer surplus. Choice B is incorrect because average cost does not take into account the additional cost of producing each unit, so it cannot accurately represent the producer's surplus. Choice D is incorrect because the firm's profit includes not only the surplus from producing and selling the good, but also the fixed costs of running the business.

Question 16

Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mary's consumer surplus from the toy is

Accepted Answer

Mary's consumer surplus is the difference between the maximum price she was willing to pay for the toy and the actual price she paid. Since Mary refused an offer of $100, it means her maximum willingness to pay was at least $100. Therefore, her consumer surplus is at least $95 ($100 - $5).

Question 17

The long-run supply curve in a competitive market is upward-sloping.

Accepted Answer

The shape of the long-run supply curve will depend on how similar the firms are and on the relationship between factor prices and total industry output.

Question 18

Consumers seek to

Accepted Answer

Consumers seek to maximize expected consumer surplus, which is the difference between the maximum price a consumer is willing to pay for a good and the actual price they pay. Maximizing consumer surplus means obtaining the most satisfaction or utility from their purchases while spending the least amount of money. Therefore, option B is the best choice.

Question 19

A consumer's marginal willingness to pay

Accepted Answer

Marginal willingness to pay is the additional amount a consumer is willing to pay for each additional unit of a good or service. It is equal to the marginal value to the consumer of the last unit of output. This value will vary depending on the consumer's preferences and the price of the good or service.

Question 20

Market consumer surplus

Accepted Answer

Market 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. This can be represented graphically as the area under the demand curve and above the market price up to the quantity actually bought. Therefore, option A is the correct answer. Option B is incorrect because it refers to total market profit, not consumer surplus. Option C is incorrect because consumer surplus does depend on the quantity sold, as it is affected by changes in price and quantity. Option D is also incorrect because the area under the marginal cost curve does not represent consumer surplus, it represents producer surplus.

Quiz 8: Competitive Firms and Markets

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone) . If the price were zero, consumer surplus equals

-The above figure shows the market demand curve for mobile telecommunications (time spent on a mobile phone) . At the current price of $0.35 per minute, consumer surplus equals