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

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Question 201

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Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is

A) $0.50.
B) $0.60.
C) $0.70.
D) $1.00.

E) A) and D)
F) C) and D)

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Question 202

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Which of the following equations is not valid?

A) Consumer surplus = Value to buyers - Amount paid by buyers
B) Producer surplus = Amount received by sellers - Cost to sellers
C) Total surplus = Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers
D) Total surplus = Value to sellers - Cost to sellers

E) A) and C)
F) B) and C)

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Question 203

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If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to

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

Figure 7-21 -Refer to Figure 7-21. If the government mandated a price increase from P1 to a higher price, then

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

Figure 7-8 -Refer to Figure 7-8. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market?

Figure 7-16 -Refer to Figure 7-16. For quantities less than M, the value to the marginal buyer is

Producer surplus is the cost of production minus the amount a seller is paid.

The distinction between efficiency and equality can be described as follows:

Figure 7-20 -Refer to Figure 7-20. At equilibrium, producer surplus is

Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer?

Figure 7-7 -Refer to Figure 7-7. If the price of the good is $14, then producer surplus is

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

All else equal, what happens to consumer surplus if the price of a good decreases?

Figure 7-15 -Refer to Figure 7-15. At the equilibrium price, producer surplus is

Table 7-3 The only four consumers in a market have the following willingness to pay for a good: $\begin{array} { | c | c | } \hline \text { Buyer } & \text { Willingritis to Pay } \\\hline \text { Carlos } & \$ 15 \\\hline \text { Quilena } & \$ 25 \\\hline \text { Wilbur } & \$ 35 \\\hline \text { Ming-la } & \$ 45 \\\hline\end{array}$ -Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases from $20 to $22?

Table 7-7 The following table represents the costs of five possible sellers. $\begin{array} { | l | l | } \hline \text { Seller } & \text { Cost } \\\hline \text { Abby } & \$ 1,500 \\\hline \text { Babby } & \$ 1,200 \\\hline \text { Carlos } & \$ 1,000 \\\hline \text { Dianne } & \$ 750 \\\hline \text { Evalina } & \$ 500 \\\hline\end{array}$ -Refer to Table 7-7. Who is a marginal seller when the price is $1,200?

Let P represent price; let Q^S represent quantity supplied; and assume the equation of the supply curve is $P = 15 + ( 1 / 3 ) Q ^ { S }$ . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.

Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the demand for goods to the sellers who can produce them at least cost.