Question 1

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?
A) profits and costs to firms
B) consumer and producer surplus
C) the equilibrium price and quantity
D) incomes of and prices paid by buyers

Accepted Answer

Consumer and producer surplus is a measure of the overall welfare generated by the allocation of resources in a free market. If consumer and producer surplus are high, it suggests that there is a desirable level of allocation of resources. If they are low, it may indicate that there are inefficiencies in the market. Profits and costs to firms, equilibrium price and quantity, and incomes and prices paid by buyers are important indicators of market performance, but do not directly measure the desirability of the allocation of resources.

Question 2

At Nick's Bakery,the cost to make homemade chocolate cake is $4 per cake.As a result of selling five cakes,Nick experiences a producer surplus in the amount of $17.50.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

Producer surplus is the difference between the market price and the cost of production. In this case, we know that Nick's cost of production is $4 per cake, and that he experiences a total producer surplus of $17.50 for selling five cakes.

We can use this information to set up an equation:

Total Producer Surplus = (Market Price - Cost of Production) * Number of Cakes

$17.50 = (Market Price - $4) * 5

$17.50 = 5Market Price - $20

$37.50 = 5Market Price

Market Price = $7.50

Therefore, Nick must be selling his cakes for $7.50 each in order to experience a producer surplus of $17.50 after selling five cakes.

Question 3

The Surgeon General announces that eating apples promotes healthy teeth.As a result,the equilibrium price of apples
A) increases,and producer surplus increases.
B) increases,and producer surplus decreases.
C) decreases,and producer surplus increases.
D) decreases,and producer surplus decreases.

Accepted Answer

With the Surgeon General's announcement that eating apples promotes healthy teeth, the demand for apples increases, causing an increase in the equilibrium price. This means that consumers are willing to pay more for apples, resulting in an increase in producer surplus.

Question 4

Economists typically measure efficiency using
A) the price paid by buyers.
B) the quantity supplied by sellers.
C) total surplus.
D) profits to firms.

Accepted Answer

Total surplus represents the combined value that buyers and sellers receive from participating in a market. It reflects both consumer surplus (the difference between what buyers are willing to pay and what they actually pay) and producer surplus (the difference between the price at which sellers are willing to sell and the actual price they receive). When total surplus is maximized, it means that resources are being used efficiently and that both buyers and sellers are benefiting from the exchange.

Question 5

Total surplus
A) can be used to measure a market's efficiency.
B) is the sum of consumer and producer surplus.
C) is the to value to buyers minus the cost to sellers.
D) All of the above are correct.

Accepted Answer

Total surplus is the difference between total benefit and total cost in a market. It can be used to measure a market's efficiency, and it is calculated as the sum of consumer and producer surplus. It also represents the value to buyers minus the cost to sellers. Therefore, all of the above statements are correct.

Question 6

Which of the following will cause no change in producer surplus?
A) the imposition of a nonbinding price ceiling in the market
B) buyers expect the price of a good to be higher next month
C) the price of a substitute increases
D) income increases and buyers consider the good to be inferior

Accepted Answer

A nonbinding price ceiling means that the market price is already below the ceiling, so it does not affect the producer surplus. The other options may affect the demand or supply of the good and result in a change in producer surplus.

Question 7

Total surplus in a market is equal to
A) value to buyers - amount paid by buyers.
B) amount received by sellers - costs of sellers.
C) value to buyers - costs of sellers.
D) amount received by sellers - amount paid by buyers.

Accepted Answer

Total surplus in a market is the difference between the total value that buyers place on a good or service and the total cost of producing it. In other words, it is the value to buyers minus the costs of sellers. Option C accurately reflects this definition.

Question 8

Bill created a new software program he is willing to sell for $200.He sells his first copy and enjoys a producer surplus of $150.What is the price paid for the software?
A) $50.
B) $150.
C) $200.
D) $350.

Accepted Answer

The answer of Bill created a new software program he...

Question 9

Which of the following will cause a decrease in producer surplus?
A) the imposition of a nonbinding price ceiling in the market
B) buyers expect the price of a good to be higher next month
C) the price of a substitute increases
D) income increases and buyers consider the good to be inferior

Accepted Answer

The answer of Which of the following will cause a...

Question 10

Total surplus is represented by the area
A) under the demand curve and above the price.
B) above the supply curve and up to the price.
C) under the supply curve and up to the price.
D) between the demand and supply curves up to the point of equilibrium.

Accepted Answer

Total surplus is the sum of consumer surplus and producer surplus, which is the area between the demand and supply curves up to the point of equilibrium. This represents the maximum combined value that buyers and sellers are willing and able to exchange at the given price.

Question 11

Suppose that the market price for pizzas increases.The increase in producer surplus comes from the benefit of the higher prices to
A) only existing sellers who now receive higher prices on the pizzas they were already selling.
B) only new sellers who enter the market because of the higher prices.
C) both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.
D) Producer surplus does not increase; it decreases.

Accepted Answer

The answer of Suppose that the market price for pizzas...

Question 12

Producer surplus equals the
A) value to buyers minus the amount paid by buyers.
B) value to buyers minus the cost to sellers.
C) amount received by sellers minus the cost to sellers.
D) amount received by sellers minus the amount paid by buyers.

Accepted Answer

The answer of Producer surplus equals the
A) value to buyers...

Question 13

Bill created a new software program he is willing to sell for $300.He sells his first copy and enjoys a producer surplus of $250.What is the price paid for the software?
A) $50.
B) $250.
C) $300.
D) $550.

Accepted Answer

The answer of Bill created a new software program he...

Question 14

Donald produces nails at a cost of $350 per ton.If he sells the nails for $500 per ton,his producer surplus is
A) $150.
B) $350.
C) $500.
D) $850.

Accepted Answer

The answer of Donald produces nails at a cost of...

Question 15

Total surplus is
A) the total cost to sellers of providing the good minus the total value of the good to buyers.
B) the total value of the good to buyers minus the cost to sellers of providing the good.
C) the difference between consumer surplus and sellers' cost.
D) always smaller than producer surplus.

Accepted Answer

Total surplus is the total value of the good to buyers minus the cost to sellers of providing the good. It represents the total benefit to society from producing and consuming a good. Therefore, option B is the correct answer. Option A is incorrect because it subtracts the total value of the good to buyers from the total cost to sellers, which would result in a negative total surplus. Option C is incorrect because it only considers the difference between consumer surplus and sellers' cost, not the total surplus. Option D is incorrect because it is a generalization and total surplus can be larger than producer surplus in some cases.

Question 16

Total surplus in a market is equal to
A) consumer surplus + producer surplus.
B) value to buyers - amount paid by buyers.
C) amount received by sellers - costs of sellers.
D) producer surplus - consumer surplus.

Accepted Answer

Total surplus in a market is the total value that consumers and producers receive from a transaction minus the total cost of engaging in that transaction. Consumer surplus is the difference between the value that consumers place on a good and the price they actually pay, while producer surplus is the difference between the price that producers receive and the cost of producing the good. Therefore, total surplus is equal to consumer surplus plus producer surplus.

Question 17

Total surplus is
A) equal to producer surplus plus consumer surplus.
B) equal to the total cost to sellers minus the total value to buyers.
C) equal to consumers' willingness to pay plus producers' cost.
D) greater than the sum of consumer surplus plus producer surplus.

Accepted Answer

Total surplus is the total value received by consumers minus the total cost of producing and selling the good. This can be expressed as the sum of consumer surplus (the difference between what consumers are willing to pay and what they actually pay) and producer surplus (the difference between the price received by producers and the cost of production). Therefore, total surplus is equal to producer surplus plus consumer surplus.

Question 18

Consumer surplus equals the
A) value to buyers minus the amount paid by buyers.
B) value to buyers minus the cost to sellers.
C) amount received by sellers minus the cost to sellers.
D) amount received by sellers minus the amount paid by buyers.

Accepted Answer

Consumer surplus is the difference between the value a consumer places on a good and the price they pay for it. The value to buyers is the maximum amount they are willing to pay, so consumer surplus is calculated by subtracting the amount paid by buyers from the value to buyers.

Question 19

Kristi and Rebecca sell lemonade on the corner.It costs them 7 cents to make each cup.On a certain day,they sell 40 cups.Their producer surplus for that day amounts to $19.20.Kristi & Rebecca sold each cup for
A) 31 cents.
B) 38 cents.
C) 45 cents.
D) 55 cents.

Accepted Answer

The answer of Kristi and Rebecca sell lemonade on the...

Question 20

Total surplus is equal to
A) value to buyers - profit to sellers.
B) value to buyers - cost to sellers.
C) consumer surplus x producer surplus.
D) (consumer surplus + producer surplus)x equilibrium quantity.

Accepted Answer

The answer of Total surplus is equal to
A) value to...

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

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable?

At Nick's Bakery,the cost to make homemade chocolate cake is $4 per cake.As a result of selling five cakes,Nick experiences a producer surplus in the amount of $17.50.Nick must be selling his cakes for

The Surgeon General announces that eating apples promotes healthy teeth.As a result,the equilibrium price of apples

Economists typically measure efficiency using

Total surplus

Which of the following will cause no change in producer surplus?

Total surplus in a market is equal to

Bill created a new software program he is willing to sell for $200.He sells his first copy and enjoys a producer surplus of $150.What is the price paid for the software?

Which of the following will cause a decrease in producer surplus?

Total surplus is represented by the area

Suppose that the market price for pizzas increases.The increase in producer surplus comes from the benefit of the higher prices to

Producer surplus equals the

Bill created a new software program he is willing to sell for $300.He sells his first copy and enjoys a producer surplus of $250.What is the price paid for the software?

Donald produces nails at a cost of $350 per ton.If he sells the nails for $500 per ton,his producer surplus is

Total surplus is

Total surplus in a market is equal to

Total surplus is

Consumer surplus equals the

Kristi and Rebecca sell lemonade on the corner.It costs them 7 cents to make each cup.On a certain day,they sell 40 cups.Their producer surplus for that day amounts to $19.20.Kristi & Rebecca sold each cup for

Total surplus is equal to