Question 1

Total surplus in a market is consumer surplus minus producer surplus.

Accepted Answer

Total surplus in a market is the sum of consumer surplus and producer surplus.

Question 2

If the government imposes a binding price ceiling in a market, then the producer surplus in that market will increase.

Accepted Answer

When the government imposes a binding price ceiling in a market, it sets a maximum price that can be charged for a good or service. If this maximum price is below the market equilibrium price, it will lead to a shortage of the good or service because producers will not be willing to supply as much as consumers demand at the lower price. This means that some consumers will be unable to purchase the good or service, and those who do purchase it will do so at a lower price than they would have in a free market. However, producers will receive less revenue because they are selling their goods at a lower price, and some may even exit the market due to the reduced profits. Therefore, the producer surplus will decrease rather than increase when a price ceiling is imposed.

Question 3

The area below the price and above the supply curve measures the producer surplus in a market.

Accepted Answer

This statement is true. Producer surplus is the difference between the price at which producers are willing to sell a good and the market price they actually receive. The area below the price and above the supply curve represents the amount of money that producers are receiving above their cost of production. Therefore, it measures the producer surplus in the market.

Question 4

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is  If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.

Accepted Answer

To calculate producer surplus, we need to find the area below the market price and above the supply curve. When 90 units are produced and sold, we can find the market price by plugging in 90 for QS in the supply equation:

P = 2 + 0.1(90) = 11

So the market price is $11 per unit. To find the quantity supplied at this price, we can plug in 11 for P and solve for QS:

11 = 2 + 0.1QS
QS = 90

So at a price of $11, 90 units are supplied. To find the area below the market price and above the supply curve, we can use the formula for the area of a triangle:

Producer Surplus = (1/2)(Price - Minimum Supply Price)(Quantity Supplied)
Producer Surplus = (1/2)($11 - $2)(90)
Producer Surplus = $585

So the given information implies that producer surplus is $585, not $1,350. Therefore, the answer is false and the correct answer is B.

Question 5

Producing a soccer ball costs Jake $5. He sells it to Darby for $35. Darby values the soccer ball at $50. For this transaction, the total surplus in the market is $40.

Accepted Answer

The total surplus in the market is the difference between the total value that Darby places on the soccer ball ($50) and the cost of producing it ($5), which is $45. However, the transaction only resulted in a surplus of $30 ($50 - $20). Therefore, the statement is false.

Question 6

Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs.

Accepted Answer

Efficiency refers to whether the maximum amount of output was produced from a given number of inputs, while equality refers to whether a market outcome is fair and distributed equally among participants.

Question 7

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium.

Accepted Answer

Total surplus in a market is measured as the area above the supply curve and below the demand curve, up to the point of equilibrium, representing the sum of consumer and producer surplus.

Question 8

The cost of production plus producer surplus is the price a seller is paid.

Accepted Answer

The answer of The cost of production plus producer surplus...

Question 9

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is  If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.

Accepted Answer

The answer of Let P represent price; let QS represent...

Question 10

The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

Accepted Answer

The equilibrium price and quantity in a market represents the point where the supply and demand curves intersect. At this point, the quantity supplied matches the quantity demanded, and as a result, buyers and sellers receive the greatest benefits possible from their transactions. This is because at this point, the market clears and there are no longer any unfulfilled demand or supply needs. Therefore, the equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

Question 11

The area below the demand curve and above the supply curve measures the producer surplus in a market.

Accepted Answer

The area below the demand curve and above the price level measures consumer surplus, while the area above the supply curve and below the price level measures producer surplus in a market.

Question 12

Producer surplus measures the benefit to sellers from receiving a price above their costs.

Accepted Answer

Producer surplus is the difference between the price a seller receives and the cost of producing a good. Therefore, it measures the benefit to the seller from receiving a price above their costs.

Question 13

When demand increases so that market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases, and (2) new sellers enter the market.

Accepted Answer

When demand increases, the market price increases, which means existing sellers can charge more for their goods and increase their producer surplus. Additionally, the higher price may attract new sellers to enter the market, further increasing producer surplus overall.

Question 14

If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.

Accepted Answer

If a binding price ceiling is removed, producers are able to charge a higher price for their goods which will increase their producer surplus.

Question 15

If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35.

Accepted Answer

Producer surplus is the difference between the price a producer receives and the minimum amount they are willing to accept. In this case, Jake's producer surplus would be $40 (selling price) - $5 (production cost) = $35.

Question 16

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window- cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $200.

Accepted Answer

The answer of Connie can clean windows in large office...

Question 17

The lower the price, the lower the producer surplus, all else equal.

Accepted Answer

Producer surplus is the difference between the price a producer is willing to accept and the price they actually receive. If the price is lower, the producer surplus will also be lower.

Question 18

Total surplus = Value to buyers - Costs to sellers.

Accepted Answer

This is the definition of total surplus in economics, as it represents the difference between what buyers are willing to pay for a good or service and what sellers must expend to produce and sell it.

Question 19

Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.

Accepted Answer

Efficiency refers to the overall productivity and output of an economy, while equality refers to how the benefits and resources are distributed among individuals within that economy. Therefore, efficiency is related to the size of the economic pie, while equality is related to how that pie is divided.

Question 20

Connie can clean windows in large office buildings at a cost of $1 per window. The market price for window- cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $100.

Accepted Answer

Producer surplus is the difference between what a producer is willing to accept for a good or service versus what they actually receive. If Connie is willing to clean windows at $1 per window but receives $3 per window, her surplus per window is $2. For 100 windows, her producer surplus would be $200, not $100.

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