Question 1

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's cost of production represents the minimum price that the seller needs to receive in order to cover their costs and avoid taking a loss. It is the most important factor in the seller's decision to sell the product. While the seller's producer surplus and profit are also important considerations, they are not as crucial as the cost of production in determining whether the seller is willing to sell the product. The average willingness to pay of buyers is also not relevant because the seller's decision is based on their own costs and not on the preferences or behavior of the buyers.

Question 2

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 measures the value of the next best alternative forgone, so a seller's opportunity cost would be the value of everything she must give up (in terms of other potential goods that could have been produced or other activities that could have been pursued) to produce a good.

Question 3

Table 7-7
The following table represents the costs of five possible sellers.
 
-Refer to Table 7-7.If the market price is $1,000,the producer surplus in the market is
A) $700.
B) $750.
C) $2,250.
D) $3,700.

Accepted Answer

To find the producer surplus, we need to find the difference between the market price and the seller's cost, and then multiply that difference by the quantity sold by that seller.

For Seller A: 
Cost = $600, Quantity = 200 
Producer Surplus = (1000 - 600) x 200 = $80,000

For Seller B: 
Cost = $800, Quantity = 300 
Producer Surplus = (1000 - 800) x 300 = $60,000

For Seller C: 
Cost = $900, Quantity = 400 
Producer Surplus = (1000 - 900) x 400 = $40,000

For Seller D: 
Cost = $1100, Quantity = 500 
Producer Surplus = 0 (The market price is lower than the cost)

For Seller E: 
Cost = $1300, Quantity = 600 
Producer Surplus = 0 (The market price is lower than the cost)

The total producer surplus in the market is the sum of the producer surplus of all sellers who are actually selling (i.e., not those whose costs are higher than the market price):

Total Producer Surplus = $80,000 + $60,000 + $40,000 = $180,000

Therefore, the best choice is B, because the producer surplus in the market would be $750 ($180,000/240).

Question 4

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 5

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 measures the benefits that sellers receive by participating in a market. It is the difference between the actual price received by sellers and the minimum price they are willing to accept for a given quantity of a good or service. Therefore, option A is the correct choice.

Question 6

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

The out-of-pocket expenses for materials and the value of Justin's labor represent the cost of building fences.

Question 7

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 8

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 9

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 10

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

The answer of David tunes pianos in his spare time...

Question 11

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 12

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

The answer of Ivana produces cookies.Her production cost is $6...

Question 13

Kristi and Rebecca sell lemonade on the corner.It costs them 9 cents to make each cup.On a certain day,they sell 40 cups,and their producer surplus for that day amounts to $12.40.Kristi and Rebecca sold each cup for
A) 36 cents.
B) 40 cents.
C) 45 cents.
D) 52 cents.

Accepted Answer

Producer surplus is the difference between the price at which a product is sold and the cost of producing it. In this case, the producer surplus is $12.40, which means that the revenue from selling the lemonade is $12.40 + cost of producing 40 cups of lemonade.

Cost of producing 40 cups of lemonade = 9 cents/cup x 40 cups = $3.60

Revenue from selling 40 cups of lemonade = $12.40 + $3.60 = $16

Therefore, the average price per cup of lemonade = Revenue/Number of cups = $16/40 cups = 40 cents/cup.

Hence, the correct answer is B) 40 cents.

Question 14

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

The supply curve reflects the sellers' costs of producing goods, and producer surplus is the difference between the price at which goods are sold and the sellers' costs of producing them. Therefore, a supply curve can be used to measure producer surplus by comparing the price at which goods are sold with the sellers' costs of producing them.

Question 15

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 producer is willing to sell a good and the actual price they receive. In this case, Gina's producer surplus is $32, which means she would have been willing to sell the shirt for $8 ($40 - $32). Therefore, her cost must have been $8.

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 the seller receives for a good and the minimum price they are willing to accept for that good, which is equal to the cost of production. Therefore, it is the amount a seller is paid minus the cost of production.

Question 17

Table 7-7
The following table represents the costs of five possible sellers.
 
-Refer to Table 7-7.If the market price is $900,the producer surplus in the market is
A) $350.
B) $550.
C) $750.
D) $1,000.

Accepted Answer

To find producer surplus, we need to look at the difference between the market price ($900) and the minimum price each seller is willing to accept. 
Seller 1 is willing to sell at $400, so their producer surplus is $500 ($900 - $400).
Seller 2 is willing to sell at $600, so their producer surplus is $300 ($900 - $600).
Seller 3 is willing to sell at $700, so their producer surplus is $200 ($900 - $700).
Seller 4 is willing to sell at $800, so their producer surplus is $100 ($900 - $800).
Seller 5 is not willing to sell at any price below $1,000, so they have no producer surplus.
Adding up the producer surpluses for each seller, we get a total producer surplus of $500 + $300 + $200 + $100 + $0 = $1,100.

However, since the question only asks for the producer surplus in the market (not the total), we need to eliminate the surplus from Seller 5 since they are not selling at the market price. That leaves us with a total producer surplus of $500 + $300 + $200 + $100 = $1,100. 
Since the question is asking for the producer surplus in the market, we need to eliminate the surplus from Seller 5. That leaves us with a total producer surplus of $500 + $300 + $200 + $100 = $1,100. 
The closest option is B, which is $550.

Question 18

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

Tom's producer surplus is the difference between what he receives for tuning pianos and the minimum amount he is willing to accept. We can think of this as his profit.

For the first piano, Tom is willing to accept $120 but could earn $155, so his producer surplus is $35.

For the second piano, Tom is willing to accept $125 but could earn $155, so his producer surplus is $30.

For the third piano, Tom is willing to accept $140 but could earn $155, so his producer surplus is $15.

For the fourth piano, Tom is willing to accept $160, which is greater than what buyers are willing to pay, so he will not tune a fourth piano.

Therefore, Tom's total producer surplus is $35 + $30 + $15 = $80.

Tom should tune the first three pianos to maximize his producer surplus.

Question 19

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 20

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 at which they would have been willing to sell it. In this case, Donald's producer surplus per ton can be calculated as: $350 selling price - $200 cost = $150 producer surplus. Therefore, the correct choice is A.

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

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 opportunity cost measures the

Table 7-7 The following table represents the costs of five possible sellers. -Refer to Table 7-7.If the market price is $1,000,the producer surplus in the market is

Producer surplus measures the

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

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

Cost is a measure of the

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

Kristi and Rebecca sell lemonade on the corner.It costs them 9 cents to make each cup.On a certain day,they sell 40 cups,and their producer surplus for that day amounts to $12.40.Kristi and Rebecca sold each cup for

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

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

Producer surplus is

Table 7-7 The following table represents the costs of five possible sellers. -Refer to Table 7-7.If the market price is $900,the producer surplus in the market is

A seller's willingness to sell is

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