Chapter 7 Consumers, Producers, and the Efficiency of Markets

TRUE/FAL E 1. Welfare economics is the study of the welfare system. ANS: F DIF: 1 REF: 7 1 "#$: Su%%ly and demand !#&: Welfare (. NA!: Analytic 'S$: Definitional

!he willin)ness to %ay is the ma*imum amount that a +uyer will %ay for a )ood and measures how much the +uyer ,alues the )ood. ANS: ! DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: Willin)ness to %ay 'S$: Definitional -. For any )i,en .uantity/ the %rice on a demand cur,e re%resents the mar)inal +uyer0s willin)ness to %ay. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: Willin)ness to %ay 'S$: Inter%reti,e 1. A +uyer is willin) to +uy a %roduct at a %rice )reater than or e.ual to his willin)ness to %ay/ +ut would refuse to +uy a %roduct at a %rice less than his willin)ness to %ay. ANS: F DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: Willin)ness to %ay 'S$: Definitional 2. $onsumer sur%lus is the amount a +uyer actually has to %ay for a )ood minus the amount the +uyer is willin) to %ay for it. ANS: F DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Definitional 3. $onsumer sur%lus is the amount a +uyer is willin) to %ay for a )ood minus the amount the +uyer actually has to %ay for it. ANS: ! DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Definitional 7. $onsumer sur%lus measures the +enefit to +uyers of %artici%atin) in a mar4et. ANS: ! DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e 5. $onsumer sur%lus can +e measured as the area +etween the demand cur,e and the e.uili+rium %rice. ANS: ! DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e 6. $onsumer sur%lus can +e measured as the area +etween the demand cur,e and the su%%ly cur,e. ANS: F DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e 17. 8oel has a 1633 'ustan)/ which he sells to Susie/ an a,id car collector. Susie is %leased since she %aid 95/777 for the car +ut would ha,e +een willin) to %ay 911/777 for the car. Susie0s consumer sur%lus is 9(/777. ANS: F DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e

167

165

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

11. If Dar+y ,alues a soccer +all at 927/ and she %ays 917 for it/ her consumer sur%lus is 917. ANS: ! DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: A%%licati,e 1(. If Dar+y ,alues a soccer +all at 927/ and she %ays 917 for it/ her consumer sur%lus is 967. ANS: F DIF: 1 REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: A%%licati,e 1-. All else e.ual/ an increase in su%%ly will cause an increase in consumer sur%lus. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: A%%licati,e 11. Su%%ose there is an increase in su%%ly that reduces mar4et %rice. $onsumer sur%lus increases +ecause ;1< consumer sur%lus recei,ed +y e*istin) +uyers increases and ;(< new +uyers enter the mar4et. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e 12. If the )o,ernment im%oses a +indin) %rice floor in a mar4et/ then the consumer sur%lus in that mar4et will increase. ANS: F DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: A%%licati,e 13. If the )o,ernment im%oses a +indin) %rice floor in a mar4et/ then the consumer sur%lus in that mar4et will decrease. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: A%%licati,e 17. Each seller of a %roduct is willin) to sell as lon) as the %rice he or she can recei,e is )reater than the o%%ortunity cost of %roducin) the %roduct. ANS: ! DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: #%%ortunity cost 'S$: Inter%reti,e 15. At any .uantity/ the %rice )i,en +y the su%%ly cur,e shows the cost of the lowest cost seller. ANS: F DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: #%%ortunity cost 'S$: Inter%reti,e 16. In a com%etiti,e mar4et/ sales )o to those %roducers who are willin) to su%%ly the %roduct at the lowest %rice. ANS: ! DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e (7. &roducer sur%lus is the amount a seller is %aid minus the cost of %roduction. ANS: ! DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: Definitional (1. &roducer sur%lus is the cost of %roduction minus the amount a seller is %aid. ANS: F DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: Definitional

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ((. All else e.ual/ an increase in demand will cause an increase in %roducer sur%lus. ANS: ! DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (-. All else e.ual/ a decrease in demand will cause an increase in %roducer sur%lus. ANS: F DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (1. If %roducin) a soccer +all costs 8a4e 92/ and he sells it for 917/ his %roducer sur%lus is 912. ANS: F DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (2. If %roducin) a soccer +all costs 8a4e 92/ and he sells it for 917/ his %roducer sur%lus is 9-2. ANS: ! DIF: 1 REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (3.

166

$onnie can clean windows in lar)e office +uildin)s at a cost of 91 %er window. !he mar4et %rice for window cleanin) ser,ices is 9- %er window. If $onnie cleans 177 windows/ her %roducer sur%lus is 9177. ANS: F DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (7. $onnie can clean windows in lar)e office +uildin)s at a cost of 91 %er window. !he mar4et %rice for window cleanin) ser,ices is 9- %er window. If $onnie cleans 177 windows/ her %roducer sur%lus is 9(77. ANS: ! DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e (5. !he area +elow the %rice and a+o,e the su%%ly cur,e measures the %roducer sur%lus in a mar4et. ANS: ! DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: Inter%reti,e (6. !he area +elow the demand cur,e and a+o,e the su%%ly cur,e measures the %roducer sur%lus in a mar4et. ANS: F DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: Inter%reti,e -7. If the )o,ernment im%oses a +indin) %rice ceilin) in a mar4et/ then the %roducer sur%lus in that mar4et will increase. ANS: F DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: A%%licati,e -1. When demand increases so that mar4et %rice increases/ %roducer sur%lus increases +ecause ;1< %roducer sur%lus recei,ed +y e*istin) sellers increases/ and ;(< new sellers enter the mar4et. ANS: ! DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus 'S$: Inter%reti,e -(. !otal sur%lus in a mar4et is consumer sur%lus minus %roducer sur%lus. ANS: F DIF: 1 REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: !otal sur%lus 'S$: Definitional

(77

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets NA!: Analytic

--. !otal sur%lus = >alue to +uyers $osts to sellers. ANS: ! DIF: ( REF: 7 "#$: Su%%ly and demand !#&: !otal sur%lus 'S$: Inter%reti,e -1.

!otal sur%lus in a mar4et can +e measured as the area +elow the su%%ly cur,e %lus the area a+o,e the demand cur,e/ u% to the %oint of e.uili+rium. ANS: F DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: !otal sur%lus 'S$: Inter%reti,e -2. &roducin) a soccer +all costs 8a4e 92. ?e sells it to Dar+y for 9-2. Dar+y ,alues the soccer +all at 927. For this transaction/ the total sur%lus in the mar4et is 917. ANS: F DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: !otal sur%lus 'S$: A%%licati,e -3. !he e.uili+rium of su%%ly and demand in a mar4et ma*imi@es the total +enefits to +uyers and sellers of %artici%atin) in that mar4et. ANS: ! DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e -7. Efficiency refers to whether a mar4et outcome is fair/ while e.uality refers to whether the ma*imum amount of out%ut was %roduced from a )i,en num+er of in%uts. ANS: F DIF: 1 REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency A E.uality 'S$: Definitional -5. Efficiency is related to the si@e of the economic %ie/ whereas e.uality is related to how the %ie )ets sliced and distri+uted. ANS: ! DIF: 1 REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency A E.uality 'S$: Definitional -6. Free mar4ets allocate ;a< the su%%ly of )oods to the +uyers who ,alue them most hi)hly and ;+< the demand for )oods to the sellers who can %roduce them at least cost. ANS: ! DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e 17. Economists )enerally +elie,e that/ althou)h there may +e ad,anta)es to society from tic4et scal%in)/ the costs to society of this acti,ity outwei)h the +enefits. ANS: F DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e 11. Economists ar)ue that restrictions a)ainst tic4et scal%in) actually dri,e u% the cost of many tic4ets. ANS: ! DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e 1(. If the Bnited States le)ally allowed for a mar4et in trans%lant or)ans/ it is estimated that one 4idney would sell for at least 9177/777. ANS: F DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency A E.uality 'S$: Inter%reti,e 1-. E,en thou)h %artici%ants in the economy are moti,ated +y self interest/ the Cin,isi+le handC of the mar4et%lace )uides this self interest into %romotin) )eneral economic well +ein). ANS: ! DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: In,isi+le hand 'S$: Inter%reti,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 11. !he current %olicy on 4idney donation effecti,ely sets a %rice ceilin) of @ero. ANS: ! DIF: ( REF: 7 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e

(71

12. Bnless mar4ets are %erfectly com%etiti,e/ they may fail to ma*imi@e the total +enefits to +uyers and sellers. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: Inter%reti,e 13. In order to conclude that mar4ets are efficient/ we assume that they are %erfectly com%etiti,e. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: Efficiency 'S$: A%%licati,e 17. 'ar4ets will always allocate resources efficiently. ANS: F DIF: ( REF: 7 1 "#$: Su%%ly and demand !#&: Efficiency NA!: Analytic 'S$: A%%licati,e

15. When mar4ets fail/ %u+lic %olicy can %otentially remedy the %ro+lem and increase economic efficiency. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: 'ar4et failure 'S$: Inter%reti,e 16. 'ar4et %ower and e*ternalities are e*am%les of mar4et failures. ANS: ! DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: 'ar4et failure 'S$: Inter%reti,e !"RT A# $ER 1. Answer each of the followin) .uestions a+out demand and consumer sur%lus. a. What is consumer sur%lus/ and how is it measuredD +. What is the relationshi% +etween the demand cur,e and the willin)ness to %ayD c. #ther thin)s e.ual/ what ha%%ens to consumer sur%lus if the %rice of a )ood fallsD WhyD Illustrate usin) a demand cur,e. d. In what way does the demand cur,e re%resent the +enefit consumers recei,e from %artici%atin) in a mar4etD In addition to the demand cur,e/ what else must +e considered to determine consumer sur%lusD a. $onsumer sur%lus measures the +enefit to +uyers of %artici%atin) in a mar4et. It is measured as the amount a +uyer is willin) to %ay for a )ood minus the amount a +uyer actually %ays for it. For an indi,idual %urchase/ consumer sur%lus is the difference +etween the willin)ness to %ay/ as shown on the demand cur,e/ and the mar4et %rice. For the mar4et/ total consumer sur%lus is the area under the demand cur,e and a+o,e the %rice/ from the ori)in to the .uantity %urchased. Eecause the demand cur,e shows the ma*imum amount +uyers are willin) to %ay for a )i,en mar4et .uantity/ the %rice )i,en +y the demand cur,e re%resents the willin)ness to %ay of the mar)inal +uyer.

ANS:

+.

(7(
c.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets When the %rice of a )ood falls/ consumer sur%lus increases for two reasons. First/ those +uyers who were already +uyin) the )ood recei,e an increase in consumer sur%lus +ecause they are %ayin) less ;area E<. Second/ some new +uyers enter the mar4et +ecause the %rice of the )ood is now lower than their willin)ness to %ay ;area $<F hence/ there is additional consumer sur%lus )enerated from their %urchases. !he )ra%h should show that as %rice falls from &( to &1/ consumer sur%lus increases from area A to area AGEG$. Since the demand cur,e re%resents the ma*imum %rice the mar)inal +uyer is willin) to %ay for a )ood/ it must also re%resent the ma*imum +enefit the +uyer e*%ects to recei,e from consumin) the )ood. $onsumer sur%lus must ta4e into account the amount the +uyer actually %ays for the )ood/ with consumer sur%lus measured as the difference +etween what the +uyer is willin) to %ay and what he:she actually %aid. $onsumer sur%lus/ then/ measures the +enefit the +uyer didn0t ha,e to C%ay for.C
Price

d.

A
&(

E
&1

F Demand
H( H1 Quantity

DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus 'S$: Inter%reti,e (. !ammy lo,es donuts. !he ta+le shown reflects the ,alue !ammy %laces on each donut she eats: >alue of first donut >alue of second donut >alue of third donut >alue of fourth donut >alue of fifth donut >alue of si*th donut a. +. c. d. 97.37 97.27 97.17 97.-7 97.(7 97.17

Bse this information to construct !ammy0s demand cur,e for donuts. If the %rice of donuts is 97.(7/ how many donuts will !ammy +uyD Show !ammy0s consumer sur%lus on your )ra%h. ?ow much consumer sur%lus would she ha,e at a %rice of 97.(7D If the %rice of donuts rose to 97.17/ how many donuts would she %urchase nowD What would ha%%en to !ammy0s consumer sur%lusD Show this chan)e on your )ra%h.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: a.

1 7.6 7.5 7.7 7.3 7.2 7.1 7.7.( 7.1 1 ( 1 2 3 Price

(7-

Demand
7 5 Quantity

+. c.

At a %rice of 97.(7/ !ammy would +uy 2 donuts. !he fi)ure +elow shows !ammy0s consumer sur%lus. At a %rice of 97.(7/ !ammy0s consumer sur%lus would +e 91.77.
Price

1 7.6 7.5 7.7 7.3 7.2 7.1 7.7.( 7.1

7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1

Demand
1 ( 1 2 3 7 5 Quantity

d.

If the %rice of donuts rose to 97.17/ !ammy0s consumer sur%lus would fall to 97.-7 and she would %urchase only - donuts.
1 7.6 7.5 7.7 7.3 7.2 7.1 7.7.( 7.1 1 ( 1 2 3 7.1 7.1 7.1 Price

Demand
7 5 Quantity

DIF: !#&:

( REF: $onsumer sur%lus

71

NA!: Analytic 'S$: A%%licati,e

"#$: Su%%ly and demand

(71
-.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Answer each of the followin) .uestions a+out su%%ly and %roducer sur%lus. a. What is %roducer sur%lus/ and how is it measuredD +. What is the relationshi% +etween the cost to sellers and the su%%ly cur,eD c. #ther thin)s e.ual/ what ha%%ens to %roducer sur%lus when the %rice of a )ood risesD Illustrate your answer on a su%%ly cur,e. a. &roducer sur%lus measures the +enefit to sellers of %artici%atin) in a mar4et. It is measured as the amount a seller is %aid minus the cost of %roduction. For an indi,idual sale/ %roducer sur%lus is measured as the difference +etween the mar4et %rice and the cost of %roduction/ as shown on the su%%ly cur,e. For the mar4et/ total %roducer sur%lus is measured as the area a+o,e the su%%ly cur,e and +elow the mar4et %rice/ +etween the ori)in and the .uantity sold. Eecause the su%%ly cur,e shows the minimum amount sellers are willin) to acce%t for a )i,en .uantity/ the su%%ly cur,e re%resents the cost of the mar)inal seller. When the %rice of a )ood rises/ %roducer sur%lus increases for two reasons. First/ those sellers who were already sellin) the )ood ha,e an increase in %roducer sur%lus +ecause the %rice they recei,e is hi)her ;area A<. Second/ new sellers will enter the mar4et +ecause the %rice of the )ood is now hi)her than their willin)ness to sell ;area E<F hence/ there is additional %roducer sur%lus )enerated from their sales. !he )ra%h should show that as %rice rises from &1 to &(/ %roducer sur%lus increases from area $ to area AGEG$.
Price

ANS:

+. c.

Su%%ly

&( A &1 $ D H1 H(
Quantity

DIF: !#&: 1. 1< (<

( REF: &roducer sur%lus

7(

NA!: Analytic 'S$: Inter%reti,e

"#$: Su%%ly and demand

Ii,en the followin) e.uations two e.uations: !otal Sur%lus = $onsumer Sur%lus G &roducer Sur%lus !otal Sur%lus = >alue to Euyers $ost to Sellers

Show how e.uation ;1< can +e used to deri,e e.uation ;(<. ANS: Start with the e.uation: !otal Sur%lus = $onsumer Sur%lus G &roducer Sur%lus. !hen/ since $onsumer Sur%lus = >alue to +uyers Amount %aid +y +uyers/ and since &roducer Sur%lus = Amount recei,ed +y sellers $osts of sellers/ then !otal Sur%lus can +e written as: >alue to +uyers Amount %aid +y +uyers G Amount recei,ed +y sellers $osts of sellers. Since the Amount %aid +y +uyers e.uals the Amount recei,ed +y sellers/ the middle two terms cancel out and the result is: !otal Sur%lus = >alue to +uyers $osts of sellers. DIF: !#&: ( !otal sur%lus REF: 7NA!: Analytic 'S$: Analytical "#$: Su%%ly and demand

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 2.

(72

Answer the followin) .uestions +ased on the )ra%h that re%resents 8.R.0s demand for ri+s %er wee4 of ri+s at 8udy0s ri+ shac4. a. +. c. d. e. f. ). h. i. At the e.uili+rium %rice/ how many ri+s would 8.R. +e willin) to %urchaseD ?ow much is 8.R. willin) to %ay for (7 ri+sD What is the ma)nitude of 8.R.0s consumer sur%lus at the e.uili+rium %riceD At the e.uili+rium %rice/ how many ri+s would 8udy +e willin) to sellD ?ow hi)h must the %rice of ri+s +e for 8udy to su%%ly (7 ri+s to the mar4etD At the e.uili+rium %rice/ what is the ma)nitude of total sur%lus in the mar4etD If the %rice of ri+s rose to 917/ what would ha%%en to 8.R.0s consumer sur%lusD If the %rice of ri+s fell to 92/ what would ha%%en to 8udy0s %roducer sur%lusD E*%lain why the )ra%h that is shown ,erifies the fact that the mar4et e.uili+rium ;.uantity< ma*imi@es the sum of %roducer and consumer sur%lus.
Price

(7 15 13 11 1( 17 5 3 2 1 (

Su%%ly

Demand

17

(7

-7

17

27

37

77

57

Quantity

ANS: a. +. c. d. e. f. ). h. i. 17 917.77 957.77. 17 92 9(77 It would fall from 957 to only 9(7. It would fall from 91(7 to only 9-7. At .uantities less than the e.uili+rium .uantity/ the mar)inal ,alue to +uyers e*ceeds the mar)inal cost to sellers. Increasin) the .uantity in this re)ion raises total sur%lus until e.uili+rium .uantity is reached. At .uantities )reater than the e.uili+rium .uantity/ the mar)inal cost to sellers e*ceeds the mar)inal ,alue to +uyers and total sur%lus falls. REF: 7 NA!: Analytic $onsumer sur%lus A &roducer sur%lus A !otal sur%lus "#$: Su%%ly and demand 'S$: Analytical

DIF: !#&:

ec%% & Consumers, Producers, and the Efficiency of Markets

MULT'PLE C!"'CE 1. Welfare economics is the study of how a. the allocation of resources affects economic well +ein). +. a %rice ceilin) com%ares to a %rice floor. c. the )o,ernment hel%s %oor %eo%le. d. a consumerJs o%timal choice affects her demand cur,e. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: A NA!: Analytic 'S$: Definitional

(73
(.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Welfare economics is the study of a. ta*es and su+sidies. +. how technolo)y is +est %ut to use in the %roduction of )oods and ser,ices. c. )o,ernment welfare %ro)rams for needy %eo%le. d. how the allocation of resources affects economic well +ein). DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: D NA!: Analytic 'S$: Definitional -.

Welfare economics is the study of a. the well +ein) of less fortunate %eo%le. +. welfare %ro)rams in the Bnited States. c. how the allocation of resources affects economic well +ein). d. the effect of income redistri+ution on wor4 effort. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: $ NA!: Analytic 'S$: Definitional 1.

!he study of how the allocation of resources affects economic well +ein) is called a. consumer economics. +. macroeconomics. c. willin)ness to %ay economics. d. welfare economics. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: D NA!: Analytic 'S$: Definitional 2.

An e*am%le of %ositi,e analysis is studyin) a. how mar4et forces %roduce e.uili+rium. +. whether e.uili+rium outcomes are fair. c. whether e.uili+rium outcomes are socially desira+le. d. if income distri+utions are fair. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: &ositi,e statements

ANS: A NA!: Analytic 'S$: Definitional 3.

An e*am%le of normati,e analysis is studyin) a. how mar4et forces %roduce e.uili+rium. +. sur%luses and shorta)es. c. whether e.uili+rium outcomes are socially desira+le. d. income distri+utions. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Normati,e statements

ANS: $ NA!: Analytic 'S$: Definitional 7.

Which of the Ten Principles of Economics does welfare economics e*%lain more fullyD a. !he cost of somethin) is what you )i,e u% to )et it. +. 'ar4ets are usually a )ood way to or)ani@e economic acti,ity. c. !rade can ma4e e,eryone +etter off. d. A countryJs standard of li,in) de%ends on its a+ility to %roduce )oods and ser,ices. DIF: ( REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: E NA!: Analytic 'S$: Inter%reti,e 5.

Which of the Ten Principles of Economics does welfare economics e*%lain more fullyD a. !he cost of somethin) is what you )i,e u% to )et it. +. Rational %eo%le thin4 at the mar)in. c. 'ar4ets are usually a )ood way to or)ani@e economic acti,ity. d. &eo%le res%ond to incenti,es.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: $ NA!: Analytic 'S$: Inter%reti,e 6. DIF: ( REF: "#$: Su%%ly and demand 77 !#&: Welfare

(77

#ne of the +asic %rinci%les of economics is that mar4ets are usually a )ood way to or)ani@e economic acti,ity. !his %rinci%le is e*%lained +y the study of a. factor mar4ets. +. ener)y mar4ets. c. welfare economics. d. la+or economics. DIF: 1 REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: $ NA!: Analytic 'S$: Inter%reti,e 17.

A result of welfare economics is that the e.uili+rium %rice of a %roduct is considered to +e the +est %rice +ecause it a. ma*imi@es +oth the total re,enue for firms and the .uantity su%%lied of the %roduct. +. ma*imi@es the com+ined welfare of +uyers and sellers. c. minimi@es costs and ma*imi@es out%ut. d. minimi@es the le,el of welfare %ayments. DIF: ( REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: E NA!: Analytic 'S$: Inter%reti,e 11.

!he %articular %rice that results in .uantity su%%lied +ein) e.ual to .uantity demanded is the +est %rice +ecause it a. ma*imi@es costs of the seller. +. ma*imi@es ta* re,enue for the )o,ernment. c. ma*imi@es the com+ined welfare of +uyers and sellers. d. minimi@es the e*%enditure of +uyers. DIF: ( REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: $ NA!: Analytic 'S$: Inter%reti,e 1(.

Welfare economics e*%lains which of the followin) in the mar4et for D>DsD a. !he )o,ernment sets the %rice of D>DsF firms res%ond to the %rice +y %roducin) a s%ecific le,el of out%ut. +. !he )o,ernment sets the .uantity of D>DsF firms res%ond to the .uantity +y char)in) a s%ecific %rice. c. !he mar4et e.uili+rium %rice for D>Ds ma*imi@es the total welfare to D>D +uyers and sellers. d. !he mar4et e.uili+rium %rice for D>Ds ma*imi@es consumer welfare +ut minimi@es %roducer welfare. DIF: ( REF: "#$: Su%%ly and demand 77 !#&: Welfare

ANS: $ NA!: Analytic 'S$: Inter%reti,e

ec%( & Consumers, Producers, and the Efficiency of Markets & Consumer urp)us
MULT'PLE C!"'CE 1. !he ma*imum %rice that a +uyer will %ay for a )ood is called the a. cost. +. willin)ness to %ay. c. e.uity. d. efficiency. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: E NA!: Analytic 'S$: Definitional

(75
(.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Su%%ose "arry/ 'oe and $urly are +iddin) in an auction for a mint condition ,ideo of $harlie $ha%lin0s first mo,ie. Each has in mind a ma*imum amount that he will +id. !his ma*imum is called a. a resistance %rice. +. willin)ness to %ay. c. consumer sur%lus. d. %roducer sur%lus. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: E NA!: Analytic 'S$: Definitional -.

Su%%ose $hris and "aura attend a charity +enefit and %artici%ate in a silent auction. Each has in mind a ma*imum amount that he or she will +id for an oil %aintin) +y a locally famous artist. !his ma*imum is called a. deadwei)ht loss. +. willin)ness to %ay. c. consumer sur%lus. d. %roducer sur%lus. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: E NA!: Analytic 'S$: Definitional 1.

Willin)ness to %ay a. measures the ,alue that a +uyer %laces on a )ood. +. is the amount a seller actually recei,es for a )ood minus the minimum amount the seller is willin) to acce%t. c. is the ma*imum amount a +uyer is willin) to %ay minus the minimum amount a seller is willin) to acce%t. d. is the amount a +uyer is willin) to %ay for a )ood minus the amount the +uyer actually %ays for it. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: A NA!: Analytic 'S$: Definitional 2.

A consumer0s willin)ness to %ay directly measures a. the e*tent to which ad,ertisin) and other e*ternal forces ha,e influenced the consumerJs %references. +. the cost of a )ood to the +uyer. c. how much a +uyer ,alues a )ood. d. consumer sur%lus. DIF: !#&: ( REF: Willin)ness to %ay 71 'S$: Inter%reti,e

ANS: $ NA!: Analytic 3.

When a +uyerJs willin)ness to %ay for a )ood is e.ual to the %rice of the )ood/ the a. +uyerJs consumer sur%lus for that )ood is ma*imi@ed. +. +uyer will +uy as much of the )ood as the +uyerJs +ud)et allows. c. %rice of the )ood e*ceeds the ,alue that the +uyer %laces on the )ood. d. +uyer is indifferent +etween +uyin) the )ood and not +uyin) it. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: D NA!: Analytic 'S$: Inter%reti,e 7.

In which of the followin) circumstances would a +uyer +e indifferent a+out +uyin) a )oodD a. !he amount of consumer sur%lus the +uyer would e*%erience as a result of +uyin) the )ood is @ero. +. !he %rice of the )ood is e.ual to the +uyerJs willin)ness to %ay for the )ood. c. !he %rice of the )ood is e.ual to the ,alue the +uyer %laces on the )ood. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: D NA!: Analytic 'S$: Inter%reti,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 5. A demand cur,e reflects each of the followin) except the a. willin)ness to %ay of all +uyers in the mar4et. +. ,alue each +uyer in the mar4et %laces on the )ood. c. hi)hest %rice +uyers are willin) to %ay for each .uantity. d. a+ility of +uyers to o+tain the .uantity they desire. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

(76

ANS: D NA!: Analytic 'S$: Inter%reti,e 6.

$onsumer sur%lus is a. the amount a +uyer is willin) to %ay for a )ood minus the amount the +uyer actually %ays for it. +. the amount a +uyer is willin) to %ay for a )ood minus the cost of %roducin) the )ood. c. the amount +y which the .uantity su%%lied of a )ood e*ceeds the .uantity demanded of the )ood. d. a +uyer0s willin)ness to %ay for a )ood %lus the %rice of the )ood. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Definitional 17.

$onsumer sur%lus a. is the amount of a )ood that a consumer can +uy at a %rice +elow e.uili+rium %rice. +. is the amount a consumer is willin) to %ay minus the amount the consumer actually %ays. c. is the num+er of consumers who are e*cluded from a mar4et +ecause of scarcity. d. measures how much a seller ,alues a )ood. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Definitional 11.

$onsumer sur%lus is the a. amount of a )ood consumers )et without %ayin) anythin). +. amount a consumer %ays minus the amount the consumer is willin) to %ay. c. amount a consumer is willin) to %ay minus the amount the consumer actually %ays. d. ,alue of a )ood to a consumer. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Definitional 1(.

$onsumer sur%lus is e.ual to the a. >alue to +uyers Amount %aid +y +uyers. +. Amount %aid +y +uyers $osts of sellers. c. >alue to +uyers $osts of sellers. d. >alue to +uyers Willin)ness to %ay of +uyers. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Definitional 1-.

#n a )ra%h/ the area +elow a demand cur,e and a+o,e the %rice measures a. %roducer sur%lus. +. consumer sur%lus. c. deadwei)ht loss. d. willin)ness to %ay. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 11.

#n a )ra%h/ consumer sur%lus is re%resented +y the area a. +etween the demand and su%%ly cur,es. +. +elow the demand cur,e and a+o,e %rice. c. +elow the %rice and a+o,e the su%%ly cur,e. d. +elow the demand cur,e and to the ri)ht of e.uili+rium %rice.

(17

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 12.

$onsumer sur%lus in a mar4et can +e re%resented +y the a. area +elow the demand cur,e and a+o,e the %rice. +. distance from the demand cur,e to the hori@ontal a*is. c. distance from the demand cur,e to the ,ertical a*is. d. area +elow the demand cur,e and a+o,e the hori@ontal a*is. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e 13.

$onsumer sur%lus is a. a conce%t that hel%s us ma4e normati,e statements a+out the desira+ility of mar4et outcomes. +. re%resented on a )ra%h +y the area +elow the demand cur,e and a+o,e the %rice. c. a )ood measure of economic welfare if +uyers0 %references are the %rimary concern. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 17.

In a mar4et/ the mar)inal +uyer is the +uyer a. whose willin)ness to %ay is hi)her than that of all other +uyers and %otential +uyers. +. whose willin)ness to %ay is lower than that of all other +uyers and %otential +uyers. c. who is willin) to +uy e*actly one unit of the )ood. d. who would +e the first to lea,e the mar4et if the %rice were any hi)her. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar)inal +uyer

ANS: D NA!: Analytic 'S$: Definitional Table 7-1 *uyer 'i4e Sandy 8onathan ?aley 15.

$i))in+ness To Pay 927.77 9-7.77 9(7.77 917.77

Refer to Ta,)e 7&(. If the %rice of the %roduct is 912/ then who would +e willin) to %urchase the %roductD a. 'i4e +. 'i4e and Sandy c. 'i4e/ Sandy/ and 8onathan d. 'i4e/ Sandy/ 8onathan/ and ?aley DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: $ NA!: Analytic 'S$: A%%licati,e 16.

Refer to Ta,)e 7&(. If the %rice of the %roduct is 9((/ then who would +e willin) to %urchase the %roductD a. 'i4e +. 'i4e and Sandy c. 'i4e/ Sandy/ and 8onathan d. 'i4e/ Sandy/ 8onathan/ and ?aley DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets (7. Refer to Ta,)e 7&(. If the %rice of the %roduct is 921/ then who would +e willin) to %urchase the %roductD a. 'i4e +. 'i4e and Sandy c. 'i4e/ Sandy/ and 8onathan d. no one DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

(11

ANS: D NA!: Analytic 'S$: A%%licati,e (1.

Refer to Ta,)e 7&(. If the %rice of the %roduct is 915/ then the total consumer sur%lus is a. 9-5. +. 91(. c. 913. d. 97(. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e ((.

Refer to Ta,)e 7&(. If %rice of the %roduct is 9-7/ then the total consumer sur%lus is a. 9 17. +. 9 3. c. 9(7. d. 9-7. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

Table 7-2 !his ta+le refers to fi,e %ossi+le +uyers0 willin)ness to %ay for a case of >anilla $o4e. *uyer $i))in+ness To Pay Da,id 95.27 "aura 97.77 'e)an 92.27 'allory 91.77 Audrey 9-.27 (-. Refer to Ta,)e 7&-. If the %rice of >anilla $o4e is 93.67/ who will %urchase the )oodD a. all fi,e indi,iduals +. 'e)an/ 'allory and Audrey c. Da,id/ "aura and 'e)an d. Da,id and "aura DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: D NA!: Analytic 'S$: A%%licati,e (1.

Refer to Ta,)e 7&-. Which of the followin) is not trueD a. At a %rice of 96.77/ no +uyer is willin) to %urchase >anilla $o4e. +. At a %rice of 92.27/ 'e)an is indifferent +etween +uyin) a case of >anilla $o4e and not +uyin) one. c. At a %rice of 91.77/ total consumer sur%lus in the mar4et will +e 96.77. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

(1(
(2.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Ta,)e 7&-. If the mar4et %rice is 92.27/ the consumer sur%lus in the mar4et will +e a. 9-.77. +. 91.27. c. 912.27. d. 9(1.77. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e (3.

Refer to Ta,)e 7&-. If the mar4et %rice is 9-.57/ a. Da,idJs consumer sur%lus is 91.77 and total consumer sur%lus for the fi,e indi,iduals is 96.27. +. 'e)anJs consumer sur%lus is 91.77 and total consumer sur%lus for the fi,e indi,iduals is 96.57. c. Da,id/ "aura/ and 'e)an will +e the only +uyers of >anilla $o4e. d. the demand cur,e for >anilla $o4e/ ta4in) the fi,e indi,iduals into account/ is hori@ontal. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e

Table 7-3 !he only four consumers in a mar4et ha,e the followin) willin)ness to %ay for a )ood: *uyer $arlos Huilana Wil+ur 'in) la (7. $i))in+ness to Pay 912 9(2 9-2 912

Refer to Ta,)e 7&./ If the mar4et %rice for the )ood is 9-7/ who will %urchase the )oodD a. $arlos only +. $arlos and Huilana only c. $arlos/ Huilana/ and Wil+ur only d. Wil+ur and 'in) la only DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: D NA!: Analytic 'S$: A%%licati,e (5.

Refer to Ta,)e 7&./ If there is only one unit of the )ood and if the +uyers +id a)ainst each other for the ri)ht to %urchase it/ then the )ood will sell for a. 912 or sli)htly less. +. 9(2 or sli)htly more. c. 9-2 or sli)htly more. d. 912 or sli)htly less. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e (6.

Refer to Ta,)e 7&./ If there is only one unit of the )ood and if the +uyers +id a)ainst each other for the ri)ht to %urchase it/ then the consumer sur%lus will +e a. 97 or sli)htly more. +. 917 or sli)htly less. c. 9-7 or sli)htly more. d. 912 or sli)htly less. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets -7. Refer to Ta,)e 7&./ If the %rice is 9-7/ then consumer sur%lus in the mar4et is a. 9(7/ and Wil+ur and 'in) la %urchase the )ood. +. 9(7/ and $arlos and Huilana %urchase the )ood. c. 9-7/ and Wil+ur and 'in) la %urchase the )ood. d. 9-7/ and $arlos and Huilana %urchase the )ood. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

(1-

ANS: A NA!: Analytic 'S$: A%%licati,e -1.

Refer to Ta,)e 7&./ Who e*%eriences the lar)est loss of consumer sur%lus when the %rice of the )ood increases from 9(7 to 9((D a. Huilana +. Wil+ur c. 'in) la d. All three +uyers e*%erience the same loss of consumer sur%lus. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

Table 7-4 !he num+ers in !a+le 7 1 re,eal the ma*imum willin)ness to %ay for a tic4et to a $hica)o $u+s ,s. St. "ouis $ardinalJs +ase+all )ame at Wri)ley Field. *uyer 8ennifer Eryce Dan Da,id Ken "isa -(. $i))in+ness to Pay 917 912 9(7 9(2 927 937

Refer to Ta,)e 7&0/ If you ha,e a tic4et that you sell to the )rou% in an auction/ what will +e the sellin) %riceD a. 9(1 +. 9(3 c. 921 d. 931 DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical --.

Refer to Ta,)e 7&0/ If you ha,e a tic4et that you sell to the )rou% in an auction/ who will +uy the tic4etD a. Dan +. Da,id c. Ken d. "isa DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: Analytical -1.

Refer to Ta,)e 7&0/ If tic4ets sell for 9(7 each/ then what is the total consumer sur%lus in the mar4etD a. 92 +. 9-7 c. 917 d. 972 DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: Analytical

(11
-2.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Ta,)e 7&0/ If tic4ets sell for 9(2 each/ then what is the total consumer sur%lus in the mar4etD a. 9(2 +. 9-2 c. 937 d. 9117 DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical -3.

Refer to Ta,)e 7&0/ If you ha,e two ;essentially< identical tic4ets that you sell to the )rou% in an auction/ what will +e the sellin) %rice for each tic4etD a. 9(1 +. 9(3 c. 921 d. 931 DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Analytical

Table 7-5 For each of three %otential +uyers of oran)es/ the ta+le dis%lays the willin)ness to %ay for the first three oran)es of the day. Assume Ale*/ Ear+/ and $arlos are the only three +uyers of oran)es/ and only three oran)es can +e su%%lied %er day. First "ran+e 9(.77 91.27 97.72 econd "ran+e 91.27 91.77 97.(2 Third "ran+e 97.72 97.57 97

Ale* Ear+ $arlos -7.

Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e is 91.(7/ the mar4et .uantity of oran)es demanded %er day is a. 1. +. (. c. -. d. 1. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar4et demand

ANS: $ NA!: Analytic 'S$: Analytical -5.

Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e is 97.77/ the mar4et .uantity of oran)es demanded %er day is a. 2. +. 3. c. 7. d. 6. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar4et demand

ANS: $ NA!: Analytic 'S$: Analytical -6.

Refer to Ta,)e 7&1/ !he mar4et .uantity of oran)es demanded %er day is e*actly 2 if the %rice of an oran)e/ P/ satisfies a. 91.77 L P L 91.27. +. 97.57 L P L 91.27. c. 97.57 L P L 91.77. d. 97.72 L P L 97.57. DIF: REF: "#$: Su%%ly and demand 71 !#&: 'ar4et demand

ANS: D NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 17. Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e is 91.(7/ consumer sur%lus amounts to a. 97.77. +. 91.17. c. 91.17. d. 92.77. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

(12

ANS: $ NA!: Analytic 'S$: Analytical 11.

Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e is 97.17/ a. 3 oran)es are demanded %er day/ and total consumer sur%lus amounts to 91.12. +. 3 oran)es are demanded %er day/ and total consumer sur%lus amounts to 92.17. c. 7 oran)es are demanded %er day/ and total consumer sur%lus amounts to 92.-2. d. 7 oran)es are demanded %er day/ and total consumer sur%lus amounts to 92.27. 71 'S$: Analytical

ANS: D DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: 'ar4et demand A $onsumer sur%lus 1(.

Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e increases from 97.37 to 91.72/ total consumer sur%lus a. increases +y 9(.67. +. decreases +y 9(.(2. c. decreases +y 9(.77. d. decreases +y 9-.52. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 1-.

Refer to Ta,)e 7&1/ If the mar4et %rice of an oran)e increases from 97.77 to 91.17/ total consumer sur%lus a. increases +y 9(.27. +. decreases +y 97.57. c. decreases +y 9(.27. d. decreases +y 9-.17. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 11.

Refer to Ta,)e 7&1/ Who e*%eriences the lar)est loss of consumer sur%lus when the %rice of an oran)e increases from 97.77 to 91.17D a. Ale* +. Ear+ c. $arlos d. All three indi,iduals e*%erience the same loss of consumer sur%lus. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 12.

Refer to Ta,)e 7&1/ Who e*%eriences the lar)est gain in consumer sur%lus when the %rice of an oran)e decreases from 91.72 to 97.72D a. Ale* +. Ear+ c. $arlos d. Ale* and Ear+ e*%erience the same )ain in consumer sur%lus/ and $arlosJs )ain is @ero. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

(13
13.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Ta,)e 7&1/ Which of the followin) statements is correctD a. Neither Ear+Js consumer sur%lus nor $arlosJs consumer sur%lus can e*ceed Ale*Js consumer sur%lus/ for any %rice of an oran)e. +. All three indi,iduals will +uy at least one oran)e only if the %rice of an oran)e is less than 97.(2. c. If the %rice of an oran)e is 97.37/ total consumer sur%lus is 91.67. d. All of the a+o,e are correct. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 17.

Mou are offered a free tic4et to see the $hica)o $u+s %lay the $hica)o White So* at Wri)ley Field. Assume the tic4et has no resale ,alue. Willie Nelson is %erformin) on the same ni)ht/ and his concert is your ne*t +est alternati,e acti,ity. !ic4ets to see Willie Nelson cost 917. #n any )i,en day/ you would +e willin) to %ay u% to 927 to see and hear Willie Nelson %erform. Assume there are no other costs of seein) either e,ent. Eased on this information/ at a minimum/ how much would you ha,e to ,alue seein) the $u+s %lay the White So* to acce%t the tic4et and )o to the )ameD a. 97 +. 917 c. 917 d. 927 DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Analytical 15.

A drou)ht in $alifornia destroys many red )ra%es. As a result of the drou)ht/ the consumer sur%lus in the mar4et for red )ra%es a. increases/ and the consumer sur%lus in the mar4et for red wine increases. +. increases/ and the consumer sur%lus in the mar4et for red wine decreases. c. decreases/ and the consumer sur%lus in the mar4et for red wine increases. d. decreases/ and the consumer sur%lus in the mar4et for red wine decreases. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 16.

#laf would +e willin) to %ay 9-2 to attend a do) show/ +ut he +uys a tic4et for 9(7. #laf ,alues the do) show at a. 912. +. 9(7. c. 9-2. d. 927. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 27.

If a consumer %laces a ,alue of 912 on a %articular )ood and if the %rice of the )ood is 917/ then the a. consumer has consumer sur%lus of 9( if he or she +uys the )ood. +. consumer does not %urchase the )ood. c. mar4et is not a com%etiti,e mar4et. d. %rice of the )ood will fall due to mar4et forces. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 21.

If a consumer %laces a ,alue of 9(7 on a %articular )ood and if the %rice of the )ood is 9(2/ then the a. consumer has consumer sur%lus of 92 if he +uys the )ood. +. consumer does not %urchase the )ood. c. %rice of the )ood will rise due to mar4et forces. d. mar4et is out of e.uili+rium.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: E NA!: Analytic 'S$: A%%licati,e 2(. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

(17

If a consumer is willin) and a+le to %ay 9(7 for a %articular )ood and if he %ays 913 for the )ood/ then for that consumer/ consumer sur%lus amounts to a. 91. +. 913. c. 9(7. d. 9-3. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 2-.

Kelly is willin) to %ay 935 for a %air of shoes for a weddin). She finds a %air at her fa,orite outlet shoe store for 915. Kelly0s consumer sur%lus is a. 917. +. 9(7. c. 915. d. 935. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 21.

Eroc4 is willin) to %ay 9177 for a new suit/ +ut he is a+le to +uy the suit for 9-27. ?is consumer sur%lus is a. 927. +. 9127. c. 9-27. d. 9177. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 22.

8osh is willin) to %ay 917 for a haircut/ +ut he is a+le to %ay 9(2 at the local salon. ?is consumer sur%lus is a. 97 +ecause the cost e*ceeds his ma*imum willin)ness to %ay. +. 912. c. 9(2. d. 932. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 23.

Su%%ose "auren/ "eslie and "ydia all %urchase +ulletin +oards for their rooms for 912 each. "auren0s willin)ness to %ay was 9-2/ "eslie0s willin)ness to %ay was 9(2/ and "ydia0s willin)ness to %ay was 9-7. !otal consumer sur%lus for these three would +e a. 912. +. 9-7. c. 912. d. 967. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

(15
27.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Su%%ose Eart/ EenNamin/ and Erent each %urchase a %articular ty%e of electric %encil shar%ener at a %rice of 9(7. EartJs willin)ness to %ay was 9((/ EenNamin0s willin)ness to %ay was 9(2/ and Erent0s willin)ness to %ay was 9-7. Which of the followin) statements is correctD a. ?ad the %rice of the %encil shar%ener +een 9(3 rather than 9(7/ only Erent would ha,e +een a +uyer. +. ErentJs consumer sur%lus is the smallest of the three indi,idual consumer sur%luses. c. For the three indi,iduals to)ether/ consumer sur%lus amounts to 937. d. !he fact that all three indi,iduals %aid 9(7 for the same ty%e of %encil shar%ener indicates that each one %laced the same ,alue on that %encil shar%ener. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 25.

Su%%ose Katie/ Kendra/ and Kristen each %urchase a %articular ty%e of cell %hone at a %rice of 957. KatieJs willin)ness to %ay was 9177/ KendraJs willin)ness to %ay was 962/ and Kristen0s willin)ness to %ay was 957. Which of the followin) statements is correctD a. For the three indi,iduals to)ether/ consumer sur%lus amounts to 9-2. +. ?a,in) +ou)ht the cell %hone/ Kristen is +etter off than she would ha,e +een had she not +ou)ht it. c. ?ad the %rice of the cell %hone +een 962 rather than 957/ Katie and Kendra definitely would ha,e +een +uyers and Kristen definitely would not ha,e +een a +uyer. d. !he fact that all three indi,iduals %aid 957 for the same ty%e of cell %hone indicates that each one %laced the same ,alue on that cell %hone. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 26.

Sarah +uys a new '&- %layer for 91-2. She recei,es consumer sur%lus of 9(2 on her %urchase if her willin)ness to %ay is a. 9(2. +. 9117. c. 91-2. d. 9137. DIF: !#&: ( REF: $onsumer sur%lus 71 'S$: A%%licati,e

ANS: D NA!: Analytic 37.

Noah drin4s Dr. &e%%er. ?e can +uy as many cans of Dr. &e%%er as he wishes at a %rice of 97.27 %er can. #n a %articular day/ he is willin) to %ay 97.62 for the first can/ 97.57 for the second can/ 97.37 for the third can/ and 97.17 for the fourth can. Assume Noah is rational in decidin) how many cans to +uy. ?is consumer sur%lus is a. 97.27. +. 97.52. c. 91.72. d. 91.(7. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 31.

8anine would +e willin) to %ay 927 to see "es 'isOra+les/ +ut she +uys a tic4et for only 9-7. 8anine ,alues the %erformance at a. 9(7. +. 9-7. c. 927. d. 957. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: $ NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 3(.

(16

$had is willin) to %ay 92.77 to )et his first cu% of mornin) lattO. ?e +uys a cu% from a ,endor sellin) lattO for 9-.72 %er cu%. $had0s consumer sur%lus is a. 95.72. +. 92.77. c. 9-.72. d. 91.(2. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 3-.

$had is willin) to %ay 92.77 to )et his first cu% of mornin) lattOF he is willin) to %ay 91.27 for a second cu%. ?e +uys his first cu% from a ,endor sellin) lattO for 9-.72 %er cu%. ?e returns to that ,endor later in the mornin) to find that the ,endor has increased her %rice to 9-.67 %er cu%. $had +uys a second cu%. Which of the followin) statements is correctD a. $hadJs willin)ness to %ay for his second cu% of lattO was smaller than his willin)ness to %ay for his first cu% of lattO. +. $hadJs consumer sur%lus on his second cu% of lattO was lar)er than his consumer sur%lus on his first cu% of lattO. c. $had is irrational in that he is willin) to %ay a different %rice for his second cu% of lattO than what he is willin) to %ay for his first cu% of lattO. d. $had %laces a hi)her ,alue on his second cu% of lattO than on his first cu% of lattO. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 31.

Denise ,alues a stainless steel dishwasher for her new house at 9277/ +ut she succeeds in +uyin) one for 9-27. Denise0s willin)ness to %ay is a. 9127. +. 9-27. c. 9277. d. 9527. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: $ NA!: Analytic 'S$: A%%licati,e 32.

Denise ,alues a stainless steel dishwasher for her new house at 9277/ +ut she succeeds in +uyin) one for 9-27. Denise0s consumer sur%lus is a. 9127. +. 9-27. c. 9277. d. 9527. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 33.

'ichael ,alues a stainless steel refri)erator for his new house at 9-/277/ +ut he succeeds in +uyin) one for 9-/777. 'ichael0s willin)ness to %ay is a. 9277. +. 9-/777. c. 9-/277. d. 93/277. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: $ NA!: Analytic 'S$: A%%licati,e

((7
37.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 'ichael ,alues a stainless steel refri)erator for his new house at 9-/277/ +ut he succeeds in +uyin) one for 9-/777. 'ichael0s consumer sur%lus is a. 9277. +. 9-/777. c. 9-/277. d. 93/277. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 35.

Denise ,alues a stainless steel dishwasher for her new house at 9277. !he actual %rice of the dishwasher is 9327. Denise a. +uys the dishwasher/ and on her %urchase she e*%eriences a consumer sur%lus of 9127. +. +uys the dishwasher/ and on her %urchase she e*%eriences a consumer sur%lus of 9 127. c. does not +uy the dishwasher/ and on her %urchase she e*%eriences a consumer sur%lus of 9127. d. does not +uy the dishwasher/ and on her %urchase she e*%eriences a consumer sur%lus of 97. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 36.

Ray +uys a new tractor for 9115/777. ?e recei,es consumer sur%lus of 91-/777 on his %urchase. Ray0s willin)ness to %ay is a. 91-/777. +. 9172/777. c. 9115/777. d. 91-1/777. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: Willin)ness to %ay

ANS: D NA!: Analytic 'S$: A%%licati,e 77.

8eff decides that he would %ay as much as 9-/777 for a new la%to% com%uter. ?e +uys the com%uter and reali@es consumer sur%lus of 9777. ?ow much did 8eff %ay for his com%uterD a. 9777 +. 9(/-77 c. 9-/777 d. 9-/777 DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 71.

$ameron ,isits a s%ortin) )oods store to +uy a new set of )olf clu+s. ?e is willin) to %ay 9727 for the clu+s +ut +uys them on sale for 9272. $ameron0s consumer sur%lus from the %urchase is a. 9172. +. 9272. c. 9727. d. 91/-(2. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 7(.

If the %rice a consumer %ays for a %roduct is e.ual to a consumer0s willin)ness to %ay/ then the consumer sur%lus rele,ant to that %urchase is a. @ero. +. ne)ati,e/ and the consumer would not %urchase the %roduct. c. %ositi,e/ and the consumer would %urchase the %roduct. d. !here is not enou)h information )i,en to answer this .uestion. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 7-. Su%%ose there is an early free@e in $alifornia that reduces the si@e of the lemon cro%. What ha%%ens to consumer sur%lus in the mar4et for lemonsD a. $onsumer sur%lus increases. +. $onsumer sur%lus decreases. c. $onsumer sur%lus is not affected +y this chan)e in mar4et forces. d. We would ha,e to 4now whether the demand for lemons is elastic or inelastic to ma4e this determination. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

((1

ANS: E NA!: Analytic 'S$: A%%licati,e 71.

Su%%ose your own demand cur,e for tomatoes slo%es downward. Su%%ose also that/ for the last tomato you +ou)ht this wee4/ you %aid a %rice e*actly e.ual to your willin)ness to %ay. !hen a. you should +uy more tomatoes +efore the end of the wee4. +. you already ha,e +ou)ht too many tomatoes this wee4. c. your consumer sur%lus on the last tomato you +ou)ht is @ero. d. your consumer sur%lus on all of the tomatoes you ha,e +ou)ht this wee4 is @ero. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 72.

Su%%ose the mar4et demand cur,e for a )ood %asses throu)h the %oint ;.uantity demanded = 177/ %rice = 9(2<. If there are fi,e +uyers in the mar4et/ then a. the mar)inal +uyer0s willin)ness to %ay for the 177th unit of the )ood is 9(2. +. the sum of the fi,e +uyers0 willin)ness to %ay for the 177th unit of the )ood is 9(2. c. the a,era)e of the fi,e +uyers0 willin)ness to %ay for the 177th unit of the )ood is 9(2. d. all of the fi,e +uyers are willin) to %ay at least 9(2 for the 177th unit of the )ood. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar)inal +uyer

ANS: A NA!: Analytic 'S$: Inter%reti,e 73.

If the cost of %roducin) sofas decreases/ then consumer sur%lus in the sofa mar4et will a. increase. +. decrease. c. remain constant. d. increase for some +uyers and decrease for other +uyers. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 77.

All else e.ual/ what ha%%ens to consumer sur%lus if the %rice of a )ood increasesD a. $onsumer sur%lus increases. +. $onsumer sur%lus decreases. c. $onsumer sur%lus is unchan)ed. d. $onsumer sur%lus may increase/ decrease/ or remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 75.

All else e.ual/ what ha%%ens to consumer sur%lus if the %rice of a )ood decreasesD a. $onsumer sur%lus increases. +. $onsumer sur%lus decreases. c. $onsumer sur%lus is unchan)ed. d. $onsumer sur%lus may increase/ decrease/ or remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e

(((
76.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Which of the followin) will cause an increase in consumer sur%lusD a. an increase in the %roduction cost of the )ood +. a technolo)ical im%ro,ement in the %roduction of the )ood c. a decrease in the num+er of sellers of the )ood d. the im%osition of a +indin) %rice floor in the mar4et DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 57.

Which of the followin) will cause a decrease in consumer sur%lusD a. an increase in the num+er of sellers of the )ood +. a decrease in the %roduction cost of the )ood c. sellers e*%ect the %rice of the )ood to +e lower ne*t month d. the im%osition of a +indin) %rice floor in the mar4et DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 51.

When there is a technolo)ical ad,ance in the ice cream industry/ consumer sur%lus in that mar4et will a. increase. +. decrease. c. not chan)e/ since technolo)y affects %roducers and not consumers. d. not chan)e/ since consumersJ willin)ness to %ay is unaffected +y the technolo)ical ad,ance. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e 5(.

If the %rice of oa4 lum+er increases/ what ha%%ens to consumer sur%lus in the mar4et for oa4 ca+inetsD a. $onsumer sur%lus increases. +. $onsumer sur%lus decreases. c. $onsumer sur%lus will not chan)e consumer sur%lusF only %roducer sur%lus chan)es. d. $onsumer sur%lus de%ends on what e,ent led to the increase in the %rice of oa4 lum+er. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 5-.

Which of the followin) is not true when the %rice of a )ood or ser,ice fallsD a. Euyers who were already +uyin) the )ood or ser,ice are +etter off. +. Some new +uyers/ who are now willin) to +uy/ enter the mar4et. c. !he total consumer sur%lus in the mar4et increases. d. !he total ,alue of %urchases +efore and after the %rice chan)e is the same. 71 'S$: Inter%reti,e

ANS: D DIF: ( REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A Willin)ness to %ay 51.

When the demand for a )ood increases and the su%%ly of the )ood remains unchan)ed/ consumer sur%lus a. decreases. +. is unchan)ed. c. increases. d. may increase/ decrease/ or remain unchan)ed. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 52.

((-

Su%%ose tele,isions are a normal )ood and +uyers of tele,isions e*%erience a decrease in income. As a result/ consumer sur%lus in the tele,ision mar4et a. decreases. +. is unchan)ed. c. increases. d. may increase/ decrease/ or remain unchan)ed. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 53.

'otor oil and )asoline are com%lements. If the %rice of motor oil increases/ consumer sur%lus in the )asoline mar4et a. decreases. +. is unchan)ed. c. increases. d. may increase/ decrease/ or remain unchan)ed. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 57.

Dallas +uys straw+erries/ and he would +e willin) to %ay more than he now %ays. Su%%ose that Dallas has a chan)e in his tastes such that he ,alues straw+erries more than +efore. If the mar4et %rice is the same as +efore/ then a. Dallas0s consumer sur%lus would +e unaffected. +. Dallas0s consumer sur%lus would increase. c. Dallas0s consumer sur%lus would decrease. d. Dallas would +e wise to +uy fewer straw+erries than +efore. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e Figure 7-1

Price

A
&(

E
&1

F Demand
H( H1 Quantity

55.

Refer to Fi+ure 7&(. When the %rice is &1/ consumer sur%lus is a. A. +. AGE. c. AGEG$. d. AGEGD. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

((1
56.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&(. When the %rice is &(/ consumer sur%lus is a. A. +. E. c. AGE. d. AGEG$. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 67.

Refer to Fi+ure 7&(. When the %rice rises from &1 to &(/ consumer sur%lus a. increases +y an amount e.ual to A. +. decreases +y an amount e.ual to EG$. c. increases +y an amount e.ual to EG$. d. decreases +y an amount e.ual to $. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 61.

Refer to Fi+ure 7&(. Area $ re%resents the a. decrease in consumer sur%lus that results from a downward slo%in) demand cur,e. +. consumer sur%lus to new consumers who enter the mar4et when the %rice falls from &( to &1. c. increase in %roducer sur%lus when .uantity sold increases from H( to H1. d. decrease in consumer sur%lus to each consumer in the mar4et when the %rice increases from &1 to &(. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 6(.

Refer to Fi+ure 7&(. When the %rice rises from &1 to &(/ which of the followin) statements is not trueD a. !he +uyers who still +uy the )ood are worse off +ecause they now %ay more. +. Some +uyers lea,e the mar4et +ecause they are not willin) to +uy the )ood at the hi)her %rice. c. Euyers %lace a hi)her ,alue on the )ood after the %rice increase. d. $onsumer sur%lus in the mar4et falls. DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-2

Price

((2

&1

E $

D F I

&(

Demand
H1 H( Quantity

6-.

Refer to Fi+ure 7&-. Which area re%resents consumer sur%lus at a %rice of &1D a. AED +. A$I c. E$DF d. DFI DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 61.

Refer to Fi+ure 7&-. Which area re%resents consumer sur%lus at a %rice of &(D a. AED +. A$I c. E$DF d. DFI DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 62.

Refer to Fi+ure 7&-. Which area re%resents the increase in consumer sur%lus when the %rice falls from &1 to &(D a. AED +. A$I c. DFI d. E$ID DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 63.

Refer to Fi+ure 7&-. When the %rice falls from &1 to &(/ which area re%resents the increase in consumer sur%lus to e*istin) +uyersD a. AED +. A$I c. E$FD d. DFI DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

((3
67.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&-. When the %rice falls from &1 to &(/ which area re%resents the increase in consumer sur%lus to new +uyers enterin) the mar4etD a. AED +. A$I c. E$DF d. DFI DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e Figure 7-3

65.

Refer to Fi+ure 7&.. If the %rice of the )ood is 93/ then consumer sur%lus is a. 91. +. 93. c. 95. d. 917. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 66.

Refer to Fi+ure 7&.. If the %rice of the )ood is 92/ then consumer sur%lus is a. 96. +. 911. c. 91-. d. 913. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-4

Price 177 137 127 117 1-7 1(7 117 177 67 57 77 37 27 17 -7 (7 17 ( 1 2 3 5 17 1( 11 13 15 (7 ((

((7

Su%%ly

Demand
(2 (1 (3 (5 Quantity

177. Refer to Fi+ure 7&0/ At the e.uili+rium %rice/ consumer sur%lus is a. 9(77. +. 9-77. c. 9277. d. 9377. ANS: E NA!: Analytic 'S$: A%%licati,e DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

171. Refer to Fi+ure 7&0/ If the )o,ernment im%oses a %rice floor of 91(7 in this mar4et/ then consumer sur%lus will decrease +y a. 972. +. 91(2. c. 9((2. d. 9-77. ANS: $ NA!: Analytic 'S$: A%%licati,e DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

((5

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

Price

Figure 7-5
(27 ((2 (77 172 127 1(2 177 72 27 (2 (2 27

Demand
72 177 1(2 127 Quantity

17(. Refer to Fi+ure 7&1/ What is the consumer sur%lus if the %rice is 9177D a. 9(/277 +. 92/777 c. 917/777 d. 9(7/777 ANS: A NA!: Analytic 'S$: Analytical DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

17-. Refer to Fi+ure 7&1/ What ha%%ens to the consumer sur%lus if the %rice rises from 9177 to 9127D a. !he new consumer sur%lus is half of the ori)inal consumer sur%lus. +. !he new consumer sur%lus is (2 %ercent of the ori)inal consumer sur%lus. c. !he new consumer sur%lus is dou+le the ori)inal consumer sur%lus. d. !he new consumer sur%lus is tri%le the ori)inal consumer sur%lus. ANS: E NA!: Analytic 'S$: Analytical DIF: REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

171. $onsumer sur%lus is a )ood measure of economic welfare if %olicyma4ers want to a. ma*imi@e total +enefit. +. minimi@e deadwei)ht loss. c. res%ect the %references of sellers. d. res%ect the %references of +uyers. ANS: D NA!: Analytic 'S$: Inter%reti,e DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: $onsumer sur%lus

ec%- & Consumers, Producers, and the Efficiency of Markets & Producer urp)us
MULT'PLE C!"'CE 1. A sellerJs o%%ortunity cost measures the a. ,alue of e,erythin) she must )i,e u% to %roduce a )ood. +. amount she is %aid for a )ood minus her cost of %ro,idin) it. c. consumer sur%lus. d. out of %oc4et e*%enses to %roduce a )ood +ut not the ,alue of her time. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: $ost

ANS: A NA!: Analytic 'S$: Definitional

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets (. $ost is a measure of the a. seller0s willin)ness to sell. +. seller0s %roducer sur%lus. c. %roducer shorta)e. d. seller0s willin)ness to +uy. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: $ost

((6

ANS: A NA!: Analytic 'S$: Inter%reti,e -.

Ally mows lawns for a li,in). AllyJs out of %oc4et e*%enses ;for e.ui%ment/ )asoline/ and so on< %lus the ,alue that she %laces on her own time amount to her a. %roducer sur%lus. +. %roducer deficit. c. cost of mowin) lawns. d. %rofit. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: $ost

ANS: $ NA!: Analytic 'S$: Definitional 1.

A su%%ly cur,e can +e used to measure %roducer sur%lus +ecause it reflects a. the actions of sellers. +. .uantity su%%lied. c. sellers0 costs. d. the amount that will +e %urchased +y consumers in the mar4et.

ANS: $ DIF: ( REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &roducer sur%lus A Su%%ly cur,e 'S$: Inter%reti,e 2. A seller is willin) to sell a %roduct only if the seller recei,es a %rice that is at least as )reat as the a. sellerJs %roducer sur%lus. +. sellersJs cost of %roduction. c. sellerJs %rofit. d. a,era)e willin)ness to %ay of +uyers of the %roduct. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: $ost

ANS: E NA!: Analytic 'S$: Inter%reti,e 3.

&roducer sur%lus is a. measured usin) the demand cur,e for a )ood. +. always a ne)ati,e num+er for sellers in a com%etiti,e mar4et. c. the amount a seller is %aid minus the cost of %roduction. d. the o%%ortunity cost of %roduction minus the cost of %roducin) )oods that )o unsold. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Definitional 7.

&roducer sur%lus measures the a. +enefits to sellers of %artici%atin) in a mar4et. +. costs to sellers of %artici%atin) in a mar4et. c. %rice that +uyers are willin) to %ay for sellersJ out%ut of a )ood or ser,ice. d. +enefit to sellers of %roducin) a )reater .uantity of a )ood or ser,ice than +uyers demand. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e

(-7
5.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets A sellerJs willin)ness to sell is a. measured +y the sellerJs cost of %roduction. +. related to her su%%ly cur,e/ Nust as a +uyerJs willin)ness to +uy is related to his demand cur,e. c. less than the %rice recei,ed if %roducer sur%lus is a %ositi,e num+er. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 6.

Karen shar%ens 4ni,es in her s%are time for e*tra income. Euyers of her ser,ice are willin) to %ay 9(.27 %er 4nife for as many 4ni,es as Karen is willin) to shar%en. #n a %articular day/ she is willin) to shar%en the first 4nife for 91.72/ the second 4nife for 9(.(2/ the third 4nife for 9(.72/ and the fourth 4nife for 9-.(2. Assume Karen is rational in decidin) how many 4ni,es to shar%en. ?er %roducer sur%lus is a. 97.(2. +. 97.27. c. 91.77. d. 91.72. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 17.

Anita shar%ens 4ni,es in her s%are time for e*tra income. Euyers of her ser,ice are willin) to %ay 9-.27 %er 4nife for as many 4ni,es as Anita is willin) to shar%en. #n a %articular day/ she is willin) to shar%en the first 4nife for 9(.77/ the second 4nife for 9(.27/ the third 4nife for 9-.77/ and the fourth 4nife for 9-.27. Assume Anita is rational in decidin) how many 4ni,es to shar%en. ?er %roducer sur%lus is a. 9-.27. +. 9-.77. c. 9(.77. d. 97.27. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical 11.

Da,id tunes %ianos in his s%are time for e*tra income. Euyers of his ser,ice are willin) to %ay 9127 %er tunin). #ne %articular wee4/ Da,id is willin) to tune the first %iano for 9112/ the second %iano for 91(2/ the third %iano for 9117/ and the fourth %iano for 9172. Assume Da,id is rational in decidin) how many %ianos to tune. ?is %roducer sur%lus is a. 9(2. +. 9-2. c. 977. d. 962. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 1(.

Da,id tunes %ianos in his s%are time for e*tra income. Euyers of his ser,ice are willin) to %ay 91-2 %er tunin). #ne %articular wee4/ Da,id is willin) to tune the first %iano for 9112/ the second %iano for 91(2/ the third %iano for 9117/ and the fourth %iano for 9172. Assume Da,id is rational in decidin) how many %ianos to tune. ?is %roducer sur%lus is a. 9 12. +. 9(7. c. 9-7. d. 972. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 1-. I,ana %roduces coo4ies. ?er %roduction cost is 93 %er do@en. She sells the coo4ies for 95 %er do@en. ?er %roducer sur%lus %er do@en coo4ies is a. 9(. +. 93. c. 95. d. 911. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

(-1

ANS: A NA!: Analytic 'S$: Inter%reti,e 11.

Donald %roduces nails at a cost of 9(77 %er ton. If he sells the nails for 9-27 %er ton/ his %roducer sur%lus %er ton is a. 9127. +. 9(77. c. 9-27. d. 9227. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 12.

If Ro+erta sells a shirt for 9-7/ and her %roducer sur%lus from the sale is 9(-/ her cost must ha,e +een a. 92-. +. 9-7. c. 97. d. We would ha,e to 4now the consumer sur%lus in order to ma4e this determination. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 13.

Ronnie o%erates a lawn care ser,ice. #n each day/ the cost of mowin) the first lawn is 917/ the cost of mowin) the second lawn is 91(/ and the cost of mowin) the third lawn is 912. ?is %roducer sur%lus on the first three lawns of the day is 92-. If Ronnie char)es all customers the same %rice for lawn mowin)/ that %rice is a. 9(2. +. 9-7. c. 9-3. d. 912. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 17.

At Nic40s Ea4ery/ the cost to ma4e homemade chocolate ca4e is 9- %er ca4e. As a result of sellin) three ca4es/ Nic4 e*%eriences a %roducer sur%lus in the amount of 916.27. Nic4 must +e sellin) his ca4es for a. 93.27 each. +. 97.27 each. c. 96.27 each. d. 917.27 each. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 15.

Kristi and Re+ecca sell lemonade on the corner. It costs them 7 cents to ma4e each cu%. #n a certain day/ they sell 17 cu%s/ and their %roducer sur%lus for that day amounts to 912.(7. Kristi and Re+ecca sold each cu% for a. -1 cents. +. -5 cents. c. 12 cents. d. 22 cents. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

(-(

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

Table 7-6 !he followin) ta+le re%resents the costs of fi,e %ossi+le sellers. e))er A++y Eo++y $arlos Dianne E,alina 16. Cost 91/277 91/(77 91/777 9727 9277

Refer to Ta,)e 7&2. If the mar4et %rice is 91/777/ the %roducer sur%lus in the mar4et is a. 9777. +. 9727. c. 9(/(27. d. 9-/777. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical (7.

Refer to Ta,)e 7&2. If the mar4et %rice is 9677/ the %roducer sur%lus in the mar4et is a. 9-27. +. 9227. c. 9727. d. 91/777. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical (1.

Refer to Ta,)e 7&2. If the mar4et %rice is 91/177/ the com+ined total cost of all %artici%atin) sellers is a. 9-/777. +. 9(/777. c. 9(/(27. d. 91/(27. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: #%%ortunity cost

ANS: $ NA!: Analytic 'S$: Analytical ((.

Refer to Ta,)e 7&2. If the mar4et %rice is 9677/ the com+ined total cost of all %artici%atin) sellers is a. 9-/777. +. 9(/777. c. 9(/(27. d. 91/(27. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: #%%ortunity cost

ANS: D NA!: Analytic 'S$: Analytical (-.

Refer to Ta,)e 7&2. If the %rice is 91/777/ a. Eo++y is an ea)er su%%lier. +. Dianne is an ea)er su%%lier. c. A++yJs %roducer sur%lus is 9277. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus A Su%%ly

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets (1. Refer to Ta,)e 7&2. If the %rice is 9772/ who would +e willin) to su%%ly the %roductD a. A++y and Eo++y +. A++y/ Eo++y/ and $arlos c. $arlos/ Dianne/ and E,alina d. Dianne and E,alina DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus A Su%%ly

(--

ANS: D NA!: Analytic 'S$: A%%licati,e (2.

Refer to Ta,)e 7&2. Su%%ose each of the fi,e sellers can su%%ly at most one unit of the )ood. !he mar4et .uantity su%%lied is e*actly - if the %rice is a. 9377. +. 9777. c. 9677. d. 91/177. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus A Su%%ly

ANS: D NA!: Analytic 'S$: Analytical (3.

Refer to Ta,)e 7&2. Su%%ose each of the fi,e sellers can su%%ly at most one unit of the )ood. !he mar4et .uantity su%%lied is e*actly 1 if the %rice is a. 9777. +. 9677. c. 91/177. d. 91/-77. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus A Su%%ly

ANS: D NA!: Analytic 'S$: Analytical (7.

Refer to Ta,)e 7&2. Who is a mar)inal seller when the %rice is 91/(77D a. Eo++y +. Eo++y and A++y c. $arlos/ Dianne/ and E,alina d. $arlos/ Dianne/ E,alina/ and Eo++y DIF: ( REF: "#$: Su%%ly and demand 7( !#&: 'ar)inal seller

ANS: A NA!: Analytic 'S$: A%%licati,e

Table 7-7 !he only four %roducers in a mar4et ha,e the followin) cost: e))er $harlie Huinn Wre* 'a*ine (5. Cost 927 9177 9127 9(77

Refer to Ta,)e 7&7/ If the sellers +id a)ainst each other for the ri)ht to sell the )ood to a consumer/ then the )ood will sell for a. 927 or sli)htly more. +. 9177 or sli)htly less. c. 9127 or sli)htly less. d. 9(77 or sli)htly more. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &rice A $ost

ANS: E NA!: Analytic 'S$: Analytical

(-1
(6.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Ta,)e 7&7/ If the sellers +id a)ainst each other for the ri)ht to sell the )ood to a consumer/ then the %roducer sur%lus will +e a. 97 or sli)htly more. +. 927 or sli)htly less. c. 9127 or sli)htly less. d. 9(77 or sli)htly more.

ANS: E DIF: REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &rice A $ost A &roducer sur%lus 'S$: Analytical -7. Refer to Ta,)e 7&7/ If $harlie/ Huinn/ and Wre* sell the )ood/ and the resultin) %roducer sur%lus is 9-77/ then the %rice must ha,e +een a. 9(77. +. 9-77. c. 9127. d. 9377.

ANS: A DIF: REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &rice A $ost A &roducer sur%lus 'S$: Analytical -1. Refer to Ta,)e 7&7/ If $harlie/ Huinn/ Wre*/ and 'a*ine sell the )ood/ and the resultin) %roducer sur%lus is 9777/ then the %rice must ha,e +een a. 9(77. +. 9-77. c. 9277. d. 9777.

ANS: E DIF: REF: 7 ( NA!: Analytic "#$: Su%%ly and demand !#&: &rice A $ost A &roducer sur%lus 'S$: Analytical Table 7-8 !he num+ers re,eal the o%%ortunity costs of %ro,idin) 17 %iano lessons of e.ual .uality. e))er 'arcia 8an $indy Ire) &eter Eo++y -(. Cost 9(77 9(27 9-27 9177 9777 9577

Refer to Ta,)e 7&3/ Mou wish to %urchase 17 %iano lessons/ so you ta4e +ids from each of the sellers. Mou will not acce%t a +id +elow a sellerJs cost +ecause you are concerned that the seller will not %ro,ide all 17 lessons. What +id will you acce%tD a. 9-21 +. 9(21 c. 9(16 d. 9166 DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets --.

(-2

Refer to Ta,)e 7&3/ Mou wish to %urchase 17 %iano lessons for yourself and for your +rother/ so you ta4e +ids from each of the sellers. Mou will ta4e lessons at the same time/ so one teacher cannot %ro,ide lessons to +oth of you. Mou must %ay the same %rice for +oth sets of lessons/ and you will not acce%t a +id +elow a sellerJs cost +ecause you are concerned that the seller will not %ro,ide all 17 lessons. What +id will you acce%tD a. 9-21 +. 9-16 c. 9(71 d. 9166 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical -1.

Refer to Ta,)e 7&3/ !he e.uili+rium mar4et %rice for 17 %iano lessons is 9177. What is the total %roducer sur%lus in the mar4etD a. 97 +. 9-77 c. 9177 d. 9777 DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical -2.

Refer to Ta,)e 7&3/ !he e.uili+rium mar4et %rice for 17 %iano lessons is 9-77. What is the total %roducer sur%lus in the mar4etD a. 927 +. 9127 c. 91/727 d. 91/277 DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical -3.

Refer to Ta,)e 7&3/ Mou wish to %urchase 17 %iano lessons/ so you ta4e +ids from each of the sellers. !he +ids are re.uired to +e rounded to the nearest dollar. Mou will not acce%t a +id +elow a sellerJs cost +ecause you are concerned that the seller will not %ro,ide all 17 lessons. Mour %arents ha,e )i,en you 9127 to s%end on %iano lessons. Mou +elie,e that the sellers with hi)her o%%ortunity costs offer hi)her .uality lessons. Mou want the hi)hest .uality lessons that you can afford/ +ut you can s%end any remainin) money on dinner with friends. From whom will you ta4e lessons/ and how much money will you s%endD a. &eterF 9127 +. $indyF 9127 c. Ire)F 9171 d. $indyF 9171 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

(-3

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

Figure 7-6

-7.

Refer to Fi+ure 7&2. If the %rice of the )ood is 95.27/ then %roducer sur%lus is a. 9(.27. +. 93.27. c. 95.77. d. 911.77. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e -5.

Refer to Fi+ure 7&2. If the %rice of the )ood is 911/ then %roducer sur%lus is a. 917. +. 9((. c. 9(2. d. 9(5. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-7

Price

(-7

Su%%ly A D ?

&(

&1

$ H1 H(
Quantity

-6.

Refer to Fi+ure 7&7. Which area re%resents %roducer sur%lus when the %rice is &1D a. E$I +. A$? c. AEID d. DI? DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 17.

Refer to Fi+ure 7&7/ Which area re%resents %roducer sur%lus when the %rice is &(D a. E$I +. A$? c. AEID d. A?IE DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 11.

Refer to Fi+ure 7&7. Which area re%resents the increase in %roducer sur%lus when the %rice rises from &1 to &(D a. E$I +. A$? c. AEID d. A?IE DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 1(.

Refer to Fi+ure 7&7. When the %rice rises from &1 to &(/ which area re%resents the increase in %roducer sur%lus to e*istin) %roducersD a. E$I +. A$? c. DI? d. AEID DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

(-5
1-.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&7. Which area re%resents the increase in %roducer sur%lus when the %rice rises from &1 to &( due to new %roducers enterin) the mar4etD a. E$I +. A$? c. DI? d. A?IE DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e Figure 7-8

-77 (72 (27 ((2 (77 172 127 1(2 177 72 27 (2 D (2 27 S0 Price

D0 Quantity

72 177 1(2 127 172 (77

11.

Refer to Fi+ure 7&3/ If the su%%ly cur,e is S/ the demand cur,e is D/ and the e.uili+rium %rice is 9177/ what is the %roducer sur%lusD a. 93(2 +. 91/(27 c. 9(/277 d. 92/777 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 12.

Refer to Fi+ure 7&3/ If the su%%ly cur,e is SJ/ the demand cur,e is D/ and the e.uili+rium %rice is 9127/ what is the %roducer sur%lusD a. 93(2 +. 91/(27 c. 9(/277 d. 92/777 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 13.

Refer to Fi+ure 7&3/ If the demand cur,e is D and the su%%ly cur,e shifts from SJ to S/ what is the change in %roducer sur%lusD a. &roducer sur%lus increases +y 93(2. +. &roducer sur%lus increases +y 91/572. c. &roducer sur%lus decreases +y 93(2. d. &roducer sur%lus decreases +y 91/572. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 17.

(-6

Refer to Fi+ure 7&3/ If the su%%ly cur,e is S and the demand cur,e shifts from D to DJ/ what is the change in %roducer sur%lusD a. &roducer sur%lus increases +y 9-/1(2. +. &roducer sur%lus increases +y 92/3(2. c. &roducer sur%lus decreases +y 9-/1(2. d. &roducer sur%lus decreases +y 92/3(2. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 15.

Refer to Fi+ure 7&3/ If the su%%ly cur,e is S and the demand cur,e shifts from D to DJ/ what is the increase in %roducer sur%lus to e*istin) %roducersD a. 93(2 +. 9(/277 c. 9-/1(2 d. 92/3(2 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical 16.

Refer to Fi+ure 7&3/ If the su%%ly cur,e is S and the demand cur,e shifts from D to DJ/ what is the increase in %roducer sur%lus due to new %roducers enterin) the mar4etD a. 93(2 +. 9(/277 c. 9-/1(2 d. 92/3(2 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical Figure 7-9

(27 ((2 (77 172 127 1(2 177 72 27 (2 (2 27 Price

72 177 1(2 127

Quantity

27.

Refer to Fi+ure 7&4/ If the e.uili+rium %rice is 927/ what is the %roducer sur%lusD a. 93(2 +. 9-/727 c. 92/3(2 d. 917/777 DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical

(17
21.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&4/ If the e.uili+rium %rice is 9(77/ what is the %roducer sur%lusD a. 93(2 +. 9-/727 c. 917/777 d. 9(7/777 DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 2(.

Refer to Fi+ure 7&4/ If the e.uili+rium %rice rises from 927 to 9(77/ what is the additional %roducer sur%lus to initial %roducersD a. 93(2 +. 9-/727 c. 92/3(2 d. 917/777 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical 2-.

Refer to Fi+ure 7&4/ If the e.uili+rium %rice rises from 927 to 9(77/ what is the %roducer sur%lus to new %roducersD a. 93(2 +. 9-/727 c. 92/3(2 d. 917/777 DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-10

Price 177 137 127 117 1-7 1(7 117 177 67 57 77 37 27 17 -7 (7 17 1 ( 1 2 3 7 5 6 17 11 1( 111 12 13 17 15 16 (7 (1 (( ((1

(11

D
(2 Quantity

21.

Refer to Fi+ure 7&(%/ At the e.uili+rium %rice/ %roducer sur%lus is a. 9(77. +. 9177. c. 9127. d. 9677. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 22.

Refer to Fi+ure 7&(%/ If the )o,ernment im%oses a %rice ceilin) of 977 in this mar4et/ then the new %roducer sur%lus will +e a. 927. +. 9177. c. 9172. d. 9-27. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical 23.

Refer to Fi+ure 7&(%/ If the )o,ernment im%oses a %rice ceilin) of 977 in this mar4et/ then %roducer sur%lus will decrease +y a. 927. +. 91(2. c. 9127. d. 9(77. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

(1(

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

Price

Figure 7-11
Su%%ly

&( A &1 $ D H1 H(
Quantity

27.

Refer to Fi+ure 7&((. When the %rice is &(/ %roducer sur%lus is a. A. +. AG$. c. AGEG$. d. DGI. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 25.

Refer to Fi+ure 7&((. When the %rice is &1/ %roducer sur%lus is a. A. +. $. c. AGE. d. $GD. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 26.

Refer to Fi+ure 7&((. When the %rice falls from &( to &1/ %roducer sur%lus a. decreases +y an amount e.ual to $. +. decreases +y an amount e.ual to AGE. c. decreases +y an amount e.ual to AG$. d. increases +y an amount e.ual to AGE. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 37.

Refer to Fi+ure 7&((. When the %rice rises from &1 to &(/ what area re%resents the increase in %roducer sur%lusD a. A +. AGE c. AGEG$ d. I DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 31. Refer to Fi+ure 7&((. When the %rice rises from &1 to &(/ which area re%resents the increase in %roducer sur%lus to e*istin) %roducersD a. A +. AGE c. AGEG$ d. I DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

(1-

ANS: A NA!: Analytic 'S$: A%%licati,e 3(.

Refer to Fi+ure 7&((. When the %rice rises from &1 to &(/ which area re%resents the increase in %roducer sur%lus due to new %roducers enterin) the mar4etD a. A +. E c. AGE d. I DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 3-.

Refer to Fi+ure 7&((. Area A re%resents a. %roducer sur%lus to new %roducers enterin) the mar4et as the result of an increase in %rice from &1 to &(. +. the increase in consumer sur%lus that results from an u%ward slo%in) su%%ly cur,e. c. the increase in total sur%lus when sellers are willin) and a+le to increase su%%ly from H1 to H(. d. the increase in %roducer sur%lus to those %roducers already in the mar4et when the %rice increases from &1 to &(. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 31.

Refer to Fi+ure 7&((/ Area E re%resents a. the com+ined %rofits of all %roducers when the %rice is &(. +. the increase in %roducer sur%lus to all %roducers as the result of an increase in the %rice from &1 to &(. c. %roducer sur%lus to new %roducers enterin) the mar4et as the result of an increase in the %rice from &1 to &(. d. that %ortion of the increase in %roducer sur%lus that is offset +y a loss in consumer sur%lus when the %rice increases from &1 to &(. DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 32.

Refer to Fi+ure 7&2. When the %rice falls from &( to &1/ which of the followin) would not +e trueD a. !he sellers who still sell the )ood are worse off +ecause they now recei,e less. +. Some sellers lea,e the mar4et +ecause they are not willin) to sell the )ood at the lower %rice. c. !he total cost of what is now sold +y sellers is actually hi)her than it was +efore the decrease in the %rice. d. &roducer sur%lus would fall +y area A G E. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 33.

&roducer sur%lus e.uals a. >alue to +uyers Amount %aid +y +uyers. +. Amount recei,ed +y sellers $osts of sellers. c. >alue to +uyers $osts of sellers. d. >alue to +uyers Amount %aid +y +uyers G Amount recei,ed +y sellers $osts of sellers.

(11

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Definitional 37.

&roducer sur%lus is the a. area under the su%%ly cur,e to the left of the amount sold. +. amount a seller is %aid minus the cost of %roduction. c. area +etween the su%%ly and demand cur,es/ a+o,e the e.uili+rium %rice. d. cost to sellers of %artici%atin) in a mar4et. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 35.

&roducer sur%lus is the area a. under the su%%ly cur,e. +. +etween the su%%ly and demand cur,es. c. +elow the %rice and a+o,e the su%%ly cur,e. d. under the demand cur,e and a+o,e the %rice. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e 36.

&roducer sur%lus is a. re%resented on a )ra%h +y the area +elow the demand cur,e and a+o,e the su%%ly cur,e. +. the amount a seller is %aid minus the cost of %roduction. c. also referred to as e*cess su%%ly. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 77.

&roducer sur%lus directly measures a. the well +ein) of society as a whole. +. the well +ein) of +uyers and sellers. c. the well +ein) of sellers. d. sellersJ willin)ness to sell. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e 71.

&roducer sur%lus directly measures a. the well +ein) of sellers. +. %roduction costs. c. e*cess demand. d. unsold in,entories. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e 7(.

!he mar)inal seller is the seller who a. cannot com%ete with the other sellers in the mar4et. +. would lea,e the mar4et first if the %rice were any lower. c. can %roduce at the lowest cost. d. has the lar)est %roducer sur%lus. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: 'ar)inal seller

ANS: E NA!: Analytic 'S$: Definitional

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 7-. !he mar)inal seller is the seller a. for whom the mar)inal cost of %roducin) one more unit of out%ut is the lowest amon) all sellers/ and the mar)inal +uyer is the +uyer for whom the mar)inal +enefit of one more unit of the )ood is the hi)hest amon) all +uyers. +. who su%%lies the smallest .uantity of the )ood amon) all sellers/ and the mar)inal +uyer is the +uyer who demands the smallest .uantity of the )ood amon) all +uyers. c. who would lea,e the mar4et first if the %rice were any lower/ and the mar)inal +uyer is the +uyer who would lea,e the mar4et first if the %rice were any hi)her. d. who has the lar)est %roducer sur%lus/ and the mar)inal +uyer is the +uyer who has the lar)est consumer sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: 'ar)inal seller

(12

ANS: $ NA!: Analytic 'S$: Definitional 71.

Su%%ose the demand for nachos increases. What will ha%%en to %roducer sur%lus in the mar4et for nachosD a. It increases. +. It decreases. c. It remains unchan)ed. d. It may increase/ decrease/ or remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 72.

Su%%ose the demand for nachos decreases. What will ha%%en to %roducer sur%lus in the mar4et for nachosD a. It increases. +. It decreases. c. It remains unchan)ed. d. It may increase/ decrease/ or remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 73.

Which of the followin) will cause an increase in %roducer sur%lusD a. the im%osition of a +indin) %rice ceilin) in the mar4et +. +uyers e*%ect the %rice of the )ood to +e lower ne*t month c. the %rice of a su+stitute increases d. income increases and +uyers consider the )ood to +e inferior DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 77.

If the demand for a )ood or ser,ice decreases/ %roducer sur%lus a. increases. +. decreases. c. remains the same. d. may increase/ decrease/ or remain the same. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 75.

If the demand for a )ood or ser,ice increases/ %roducer sur%lus a. increases. +. decreases. c. remains the same. d. may increase/ decrease/ or remain the same. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e

(13
76.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets !he Sur)eon Ieneral announces that eatin) chocolate increases tooth decay. As a result/ the e.uili+rium %rice of chocolate a. increases/ and %roducer sur%lus increases. +. increases/ and %roducer sur%lus decreases. c. decreases/ and %roducer sur%lus increases. d. decreases/ and %roducer sur%lus decreases. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 57.

Su%%ose consumer income increases. If )rass seed is a normal )ood/ the e.uili+rium %rice of )rass seed will a. decrease/ and %roducer sur%lus in the industry will decrease. +. increase/ and %roducer sur%lus in the industry will increase. c. decrease/ and %roducer sur%lus in the industry will increase. d. increase/ and %roducer sur%lus in the industry will decrease. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 51.

Which of the followin) statements is not correctD a. A seller would +e ea)er to sell her %roduct at a %rice hi)her than her cost. +. A seller would refuse to sell her %roduct at a %rice lower than her cost. c. A seller would +e indifferent a+out sellin) her %roduct at a %rice e.ual to her cost. d. Since sellers cannot set the %rice for their %roduct/ they must +e willin) to sell their %roduct at any %rice. DIF: ( REF: "#$: Su%%ly and demand 7( !#&: $ost

ANS: D NA!: Analytic 'S$: Inter%reti,e 5(.

Which of the followin) e,ents would increase %roducer sur%lusD a. Sellers0 costs stay the same and the %rice of the )ood increases. +. Sellers0 costs increase and the %rice of the )ood stays the same. c. Sellers0 costs increase and the %rice of the )ood decreases. d. All of the a+o,e are correct. DIF: 1 REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e 5-.

Which of the followin) will cause a decrease in %roducer sur%lusD a. the im%osition of a +indin) %rice ceilin) in the mar4et +. an increase in the num+er of +uyers of the )ood c. income increases and +uyers consider the )ood to +e normal d. the %rice of a com%lement decreases DIF: REF: "#$: Su%%ly and demand 7( !#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e

ec%. & Consumers, Producers, and the Efficiency of Markets & Market Efficiency
MULT'PLE C!"'CE 1. Which tools allow economists to determine if the allocation of resources determined +y free mar4ets is desira+leD a. %rofits and costs to firms +. consumer and %roducer sur%lus c. the e.uili+rium %rice and .uantity d. incomes of and %rices %aid +y +uyers

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: E NA!: Analytic 'S$: Inter%reti,e (. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

(17

Economists ty%ically measure efficiency usin) a. the %rice %aid +y +uyers. +. the .uantity su%%lied +y sellers. c. total sur%lus. d. %rofits to firms. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e -.

$onsumer sur%lus e.uals the a. ,alue to +uyers minus the amount %aid +y +uyers. +. ,alue to +uyers minus the cost to sellers. c. amount recei,ed +y sellers minus the cost to sellers. d. amount recei,ed +y sellers minus the amount %aid +y +uyers. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: Definitional 1.

&roducer sur%lus e.uals the a. ,alue to +uyers minus the amount %aid +y +uyers. +. ,alue to +uyers minus the cost to sellers. c. amount recei,ed +y sellers minus the cost to sellers. d. amount recei,ed +y sellers minus the amount %aid +y +uyers. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Definitional 2.

!otal sur%lus a. can +e used to measure a mar4etJs efficiency. +. is the sum of consumer and %roducer sur%lus. c. is the to ,alue to +uyers minus the cost to sellers. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 3.

!otal sur%lus is a. the total cost to sellers of %ro,idin) the )ood minus the total ,alue of the )ood to +uyers. +. the total ,alue of the )ood to +uyers minus the cost to sellers of %ro,idin) the )ood. c. the difference +etween consumer sur%lus and sellersJ cost. d. always smaller than %roducer sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 7.

!otal sur%lus is a. e.ual to %roducer sur%lus %lus consumer sur%lus. +. e.ual to the total cost to sellers minus the total ,alue to +uyers. c. e.ual to consumers0 willin)ness to %ay %lus %roducersJ cost. d. )reater than the sum of consumer sur%lus %lus %roducer sur%lus. DIF: !#&: 1 !otal sur%lus REF: 7'S$: Definitional

ANS: A NA!: Analytic

(15
5.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets !otal sur%lus is e.ual to a. ,alue to +uyers %rofit to sellers. +. ,alue to +uyers cost to sellers. c. consumer sur%lus * %roducer sur%lus. d. ;consumer sur%lus G %roducer sur%lus< * e.uili+rium .uantity. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 6.

!otal sur%lus in a mar4et is e.ual to a. ,alue to +uyers amount %aid +y +uyers. +. amount recei,ed +y sellers costs of sellers. c. ,alue to +uyers costs of sellers. d. amount recei,ed +y sellers amount %aid +y +uyers. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e 17.

!otal sur%lus in a mar4et is e.ual to a. consumer sur%lus G %roducer sur%lus. +. ,alue to +uyers amount %aid +y +uyers. c. amount recei,ed +y sellers costs of sellers. d. %roducer sur%lus consumer sur%lus. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: A NA!: Analytic 'S$: Definitional 11.

!otal sur%lus is re%resented +y the area a. under the demand cur,e and a+o,e the %rice. +. a+o,e the su%%ly cur,e and u% to the %rice. c. under the su%%ly cur,e and u% to the %rice. d. +etween the demand and su%%ly cur,es u% to the %oint of e.uili+rium. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 1(.

Which of the followin) e.uations is not ,alidD a. $onsumer sur%lus = >alue to +uyers Amount %aid +y +uyers +. &roducer sur%lus = Amount recei,ed +y sellers $ost to sellers c. !otal sur%lus = >alue to +uyers Amount %aid +y +uyers G Amount recei,ed +y sellers $osts of sellers d. !otal sur%lus = >alue to sellers $ost to sellers DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: Definitional 1-.

Which of the followin) e.uations is ,alidD a. $onsumer sur%lus = !otal sur%lus $ost to sellers +. &roducer sur%lus = !otal sur%lus $onsumer sur%lus c. !otal sur%lus = >alue to +uyers Amount %aid +y +uyers d. !otal sur%lus = Amount recei,ed +y sellers $ost to sellers DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Definitional

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 11. !otal sur%lus is re%resented +y the area +elow the a. demand cur,e and a+o,e the %rice. +. %rice and u% to the %oint of e.uili+rium. c. demand cur,e and a+o,e the su%%ly cur,e/ u% to the e.uili+rium .uantity. d. demand cur,e and a+o,e the hori@ontal a*is/ u% to the e.uili+rium .uantity. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

(16

ANS: $ NA!: Analytic 'S$: Inter%reti,e 12.

Which of the followin) is correctD a. $onsumer sur%lus refers to a situation in which there are more +uyers than sellers in a mar4et. +. &roducer sur%lus refers to a situation in which there are more sellers than +uyers in a mar4et. c. !otal sur%lus is measured as the area +elow the demand cur,e and a+o,e the su%%ly cur,e. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e 13.

We can say that the allocation of resources is efficient if a. %roducer sur%lus is ma*imi@ed. +. consumer sur%lus is ma*imi@ed. c. total sur%lus is ma*imi@ed. d. sellersJ costs are minimi@ed. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus A Efficiency

ANS: $ NA!: Analytic 'S$: Inter%reti,e 17.

Efficiency in a mar4et is achie,ed when a. a social %lanner inter,enes and sets the .uantity of out%ut after e,aluatin) +uyers0 willin)ness to %ay and sellers0 costs. +. the sum of %roducer sur%lus and consumer sur%lus is ma*imi@ed. c. all firms are %roducin) the )ood at the same low cost %er unit. d. no +uyer is willin) to %ay more than the e.uili+rium %rice for any unit of the )ood. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: Inter%reti,e 15.

At the e.uili+rium %rice of a )ood/ the )ood will +e %urchased +y those +uyers who a. ,alue the )ood more than %rice. +. ,alue the )ood less than %rice. c. ha,e the money to +uy the )ood. d. consider the )ood a necessity. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e 16.

Which of the followin) statements is not correct a+out a mar4et in e.uili+riumD a. !he %rice determines which +uyers and which sellers %artici%ate in the mar4et. +. !hose +uyers who ,alue the )ood more than the %rice choose to +uy the )ood. c. !hose sellers whose costs are less than the %rice choose to %roduce and sell the )ood. d. $onsumer sur%lus will +e e.ual to %roducer sur%lus. 7'S$: Inter%reti,e

ANS: D DIF: ( REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus

(27
(7.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Efficiency is attained when a. total sur%lus is ma*imi@ed. +. %roducer sur%lus is ma*imi@ed. c. all resources are +ein) used. d. consumer sur%lus is ma*imi@ed and %roducer sur%lus is minimi@ed. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Definitional (1.

!he distinction +etween efficiency and e.uality can +e descri+ed as follows: a. Efficiency refers to ma*imi@in) the num+er of trades amon) +uyers and sellersF e.uality refers to ma*imi@in) the )ains from trade amon) +uyers and sellers. +. Efficiency refers to minimi@in) the %rice %aid +y +uyersF e.uality refers to ma*imi@in) the )ains from trade amon) +uyers and sellers. c. Efficiency refers to ma*imi@in) the si@e of the %ieF e.uality refers to %roducin) a %ie of a )i,en si@e at the least %ossi+le cost. d. Efficiency refers to ma*imi@in) the si@e of the %ieF e.uality refers to distri+utin) the %ie fairly amon) mem+ers of society. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency A E.uality

ANS: D NA!: Analytic 'S$: Inter%reti,e ((.

If an allocation of resources is efficient/ then a. consumer sur%lus is ma*imi@ed. +. %roducer sur%lus is ma*imi@ed. c. all %otential )ains from trade amon) +uyers are sellers are +ein) reali@ed. d. the allocation achie,es e.uality as well. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: $ NA!: Analytic 'S$: Inter%reti,e (-.

'o,in) %roduction from a hi)h cost %roducer to a low cost %roducer will a. lower total sur%lus. +. raise total sur%lus. c. lower %roducer sur%lus. d. raise %roducer sur%lus +ut lower consumer sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e (1.

Which of the followin) is correctD a. Efficiency deals with the si@e of the economic %ie/ and e.uality deals with how fairly the %ie is sliced. +. E.uality can +e Nud)ed on %ositi,e )rounds whereas efficiency re.uires normati,e Nud)ments. c. Efficiency is more difficult to e,aluate than e.uality. d. E.uality and efficiency are +oth ma*imi@ed in a society when total sur%lus is ma*imi@ed. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Table 7-9 Price 91(.77 917.77 9 5.77 9 3.77 9 1.77 9 (.77 9 7.77 (2. 5uantity 6emanded 7 1 5 1( 13 (7 (1 5uantity upp)ied 1( 17 5 3 1 ( 7

(21

Refer to Ta,)e 7&4. !he e.uili+rium %rice is a. 917.77. +. 95.77. c. 93.77. d. 91.77. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: A%%licati,e (3.

Refer to Ta,)e 7&4. At a %rice of 91.77/ total sur%lus is a. more than it would +e at the e.uili+rium %rice. +. less than it would +e at the e.uili+rium %rice. c. the same as it would +e at the e.uili+rium %rice. d. !here is insufficient information to ma4e this determination. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e (7.

Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. At e.uili+rium/ consumer sur%lus is a. 95. +. 91(. c. 913. d. 9-(. DIF: REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical (5.

Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. At e.uili+rium/ %roducer sur%lus is a. 9(1. +. 9-(. c. 915. d. 931. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Analytical (6.

Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. At e.uili+rium/ total sur%lus is a. 9-(. +. 915. c. 931. d. 963. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: Analytical

(2(
-7.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. If the %rice is 95 +ut only 4 units are +ou)ht and sold/ consumer sur%lus will +e a. 95. +. 91(. c. 913. d. 915. DIF: REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Analytical -1.

Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. If the %rice is 95 +ut only 4 units are +ou)ht and sold/ %roducer sur%lus will +e a. 9(1. +. 9(5. c. 9-(. d. 917. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: Analytical -(.

Refer to Ta,)e 7&4. Eoth the demand cur,e and the su%%ly cur,e are strai)ht lines. If the %rice is 95 +ut only 4 units are +ou)ht and sold/ total sur%lus will +e a. 9(7. +. 9-7. c. 9-3. d. 917. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: Analytical

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-12

Price 177 137 127 117 1-7 1(7 117 177 67 57 77 37 27 17 -7 (7 17 1 ( 1 2 3 7 5 6 17 11 1( 111 12 13 17 15 16 (7 (1 (( ((1

(2-

Su%%ly

Demand
(2 Quantity

--.

Refer to Fi+ure 7&(-/ At the e.uili+rium %rice/ consumer sur%lus is a. 9127. +. 9(77. c. 9-77. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e -1.

Refer to Fi+ure 7&(-/ At the e.uili+rium %rice/ %roducer sur%lus is a. 9127. +. 9(77. c. 9-77. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e -2.

Refer to Fi+ure 7&(-/ At the e.uili+rium %rice/ total sur%lus is a. 9127. +. 9(77. c. 9-77. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

(21
-3.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&(-/ If the )o,ernment im%oses a %rice floor of 91(7 in this mar4et/ then total sur%lus will decrease +y a. 97. +. 91(2. c. 9((2. d. 9377. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e -7.

Refer to Fi+ure 7&(-/ If the )o,ernment im%oses a %rice ceilin) of 91(7 in this mar4et/ then total sur%lus will +e a. 97. +. 91(2. c. 9-72. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e -5.

Refer to Fi+ure 7&(-/ If the )o,ernment im%oses a %rice floor of 977 in this mar4et/ then total sur%lus will +e a. 97. +. 91(2. c. 9-72. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e Figure 7-13

8 Price

Su%%ly

Demand " '

Quantity

-6.

Refer to Fi+ure 7&(./ !otal sur%lus can +e measured as the area a. 8NK. +. 8N'". c. 8R". d. 8N". DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 17. Refer to Fi+ure 7&(./ For .uantities less than '/ the ,alue to the mar)inal +uyer is a. )reater than the cost to the mar)inal seller/ so increasin) the .uantity increases total sur%lus. +. less than the cost to the mar)inal seller/ so increasin) the .uantity increases total sur%lus. c. )reater than the cost to the mar)inal seller/ so decreasin) the .uantity increases total sur%lus. d. less than the cost to the mar)inal seller/ so decreasin) the .uantity increases total sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

(22

ANS: A NA!: Analytic 'S$: Inter%reti,e 11.

Refer to Fi+ure 7&(./ For .uantities )reater than '/ the ,alue to the mar)inal +uyer is a. )reater than the cost to the mar)inal seller/ so increasin) the .uantity increases total sur%lus. +. less than the cost to the mar)inal seller/ so increasin) the .uantity increases total sur%lus. c. )reater than the cost to the mar)inal seller/ so decreasin) the .uantity increases total sur%lus. d. less than the cost to the mar)inal seller/ so decreasin) the .uantity increases total sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e Figure 7-14

1(.

Refer to Fi+ure 7&(0. Which area re%resents consumer sur%lus when the %rice is &1D a. A +. E c. $ d. D DIF: ( REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 1-.

Refer to Fi+ure 7&(0. When the %rice is &1/ area E re%resents a. total sur%lus. +. %roducer sur%lus. c. consumer sur%lus. d. %rofits. DIF: ( REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

(23
11.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&(0/ Which area re%resents %roducer sur%lus when the %rice is &1D a. A +. E c. $ d. D DIF: ( REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 12.

Refer to Fi+ure 7&(0/ When the %rice is &1/ area $ re%resents a. total +enefit. +. %roducer sur%lus. c. consumer sur%lus. d. None of the a+o,e is correct. DIF: ( REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 13.

Refer to Fi+ure 7&(0/ When the %rice is &1/ area A re%resents a. total +enefit. +. %roducer sur%lus. c. consumer sur%lus. d. None of the a+o,e is correct. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 17.

Refer to Fi+ure 7&(0/ When the %rice is &1/ area EG$ re%resents a. total sur%lus. +. %roducer sur%lus. c. consumer sur%lus. d. None of the a+o,e is correct. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 15.

Refer to Fi+ure 7&(0. Which area re%resents total sur%lus in the mar4et when the %rice is &1D a. AGE +. EG$ c. $GD d. AGEG$GD DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Figure 7-15

Price (5 (3 (1 (( (7 15 13 11 1( 17 5 3 1 ( 17 (7 -7 17 27 37 77 57 67 177 117 1(7 1-7 117 127 137 177 Quantity

(27

Su%%ly

Demand

16.

Refer to Fi+ure 7&(1. At the e.uili+rium %rice/ consumer sur%lus is a. 9157. +. 9317. c. 91/1(7. d. 91/(57. DIF: REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 27.

Refer to Fi+ure 7&(1. If the %rice decreases from 9(( to 913 due to a shift in the su%%ly cur,e/ consumer sur%lus increases +y a. 91(7. +. 9-37. c. 9157. d. 9377. DIF: REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 21.

Refer to Fi+ure 7&(1. At the e.uili+rium %rice/ %roducer sur%lus is a. 9157. +. 9317. c. 91/1(7. d. 91/(57. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 2(.

Refer to Fi+ure 7&(1. At the e.uili+rium %rice/ total sur%lus is a. 9157. +. 9317. c. 91/1(7. d. 91/(57.

(25

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 2-.

Refer to Fi+ure 7&(1. Assume demand increases and as a result/ e.uili+rium %rice increases to 9(( and e.uili+rium .uantity increases to 117. !he increase in %roducer sur%lus due to new %roducers enterin) the mar4et would +e a. 967. +. 9(17. c. 9-37. d. 9157. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 21.

Refer to Fi+ure 7&(1. Assume demand increases and as a result/ e.uili+rium %rice increases to 9(( and e.uili+rium .uantity increases to 117. !he increase in %roducer sur%lus to %roducers already in the mar4et would +e a. 967. +. 9(17. c. 9-37. d. 9157. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 22.

Refer to Fi+ure 7&(1/ Assume demand increases and as a result/ e.uili+rium %rice increases to 9(( and e.uili+rium .uantity increases to 117. !he increase in %roducer sur%lus would +e a. 9(17. +. 9-37. c. 9157. d. 9277. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 23.

Refer to Fi+ure 7&(1. !he efficient %rice is a. 9((/ and the efficient .uantity is 17. +. 9((/ and the efficient .uantity is 117. c. 913/ and the efficient .uantity is 57. d. 95/ and the efficient .uantity is 17. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: $ NA!: Analytic 'S$: A%%licati,e 27.

Refer to Fi+ure 7&(1/ If 117 units of the )ood are +ein) +ou)ht and sold/ then a. the mar)inal cost to sellers is e.ual to the mar)inal ,alue to +uyers. +. the mar)inal ,alue to +uyers is )reater than the mar)inal cost to sellers. c. the mar)inal cost to sellers is )reater than the mar)inal ,alue to +uyers. d. %roducer sur%lus is )reater than consumer sur%lus. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: $ NA!: Analytic 'S$: A%%licati,e 25.

Refer to Fi+ure 7&(1. If 17 units of the )ood are +ein) +ou)ht and sold/ then a. the mar)inal cost to sellers is e.ual to the mar)inal ,alue to +uyers. +. the mar)inal ,alue to +uyers is )reater than the mar)inal cost to sellers. c. the mar)inal cost to sellers is )reater than the mar)inal ,alue to +uyers. d. %roducer sur%lus would +e )reater than consumer sur%lus.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: E NA!: Analytic 'S$: Inter%reti,e Figure 7-16
&1
Price

(26

DIF: ( REF: "#$: Su%%ly and demand

7!#&: Efficiency

Su%%ly A

&-

E
&(

$ ?

D
&1

F I
H1

I Demand
H( Quantity

26.

Refer to Fi+ure 7&(2. !he e.uili+rium %rice is a. &1. +. &(. c. &-. d. &1. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: A%%licati,e 37.

Refer to Fi+ure 7&(2. At e.uili+rium/ consumer sur%lus is re%resented +y the area a. A. +. AGEG$. c. DG?GF. d. AGEG$GDG?GF. DIF: ( REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: A%%licati,e 31.

Refer to Fi+ure 7&(2. If the %rice were &-/ consumer sur%lus would +e re%resented +y the area a. A. +. AGEG$. c. DG?GF. d. AGEG$GDG?GF. DIF: ( REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 3(.

Refer to Fi+ure 7&(2. At e.uili+rium/ %roducer sur%lus is re%resented +y the area a. F. +. FGI. c. DG?GF. d. DG?GFGIGI. DIF: ( REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e

(37
3-.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Refer to Fi+ure 7&(2. If the %rice were &1/ %roducer sur%lus would +e re%resented +y the area a. F. +. FGI. c. DG?GF. d. DG?GFGIGI. DIF: ( REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: A NA!: Analytic 'S$: A%%licati,e 31.

Refer to Fi+ure 7&(2. At e.uili+rium/ total sur%lus is re%resented +y the area a. AGEG$. +. AGEGDGF. c. AGEG$GDG?GF. d. AGEG$GDG?GFGIGI. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 32.

Refer to Fi+ure 7&(2. !he efficient %rice .uantity com+ination is a. &1 and H1. +. &( and H(. c. &- and H1. d. &1 and 7. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: A%%licati,e Figure 7-17

33.

Refer to Fi+ure 7&(7/ At e.uili+rium/ consumer sur%lus is measured +y the area a. A$I. +. AFI. c. KEI. d. $FI. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 37. Refer to Fi+ure 7&(7/ At e.uili+rium/ consumer sur%lus is a. 9-3. +. 97(. c. 9175. d. 9111. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

(31

ANS: A NA!: Analytic 'S$: Inter%reti,e 35.

Refer to Fi+ure 7&(7. At e.uili+rium/ %roducer sur%lus is measured +y the area a. A$I. +. AFI. c. KEI. d. $FI. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: D NA!: Analytic 'S$: Inter%reti,e 36.

Refer to Fi+ure 7&(7. At e.uili+rium/ %roducer sur%lus is a. 9-3. +. 97(. c. 9175. d. 9111. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: E NA!: Analytic 'S$: Inter%reti,e 77.

Refer to Fi+ure 7&(7. At e.uili+rium/ total sur%lus is measured +y the area a. A$I. +. AFI. c. KEI. d. $FI. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e 71.

Refer to Fi+ure 7&(7. At e.uili+rium/ total sur%lus is a. 9-3. +. 97(. c. 9175. d. 9111. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: Inter%reti,e 7(.

Refer to Fi+ure 7&(7. !he e.uili+rium allocation of resources is a. efficient +ecause total sur%lus is ma*imi@ed at the e.uili+rium. +. efficient +ecause consumer sur%lus is ma*imi@ed at the e.uili+rium. c. inefficient +ecause consumer sur%lus is lar)er than %roducer sur%lus at the e.uili+rium. d. inefficient +ecause total sur%lus is ma*imi@ed when 17 units of out%ut are %roduced and sold. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e 7-.

Refer to Fi+ure 7&(7. If 1 units of the )ood are %roduced and sold/ then a. the cost to sellers e*ceeds the ,alue to +uyers. +. %roducer sur%lus is ma*imi@ed. c. total sur%lus is minimi@ed. d. the allocation of resources is inefficient.

(3(

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: D NA!: Analytic 'S$: Inter%reti,e 71.

Refer to Fi+ure 7&(7. If 17 units of the )ood are %roduced and sold/ then a. the mar)inal cost to sellers e*ceeds the mar)inal ,alue to +uyers. +. %roducer sur%lus is ma*imi@ed. c. total sur%lus is minimi@ed. d. the mar)inal ,alue to +uyers e*ceeds the mar)inal cost to sellers. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e Figure 7-18

Price

Su%%ly

$ &1

E H1

Demand
Quantity

72.

Refer to Fi+ure 7&(3/ Euyers who ,alue this )ood more than the e.uili+rium %rice are re%resented +y which line se)mentD a. A$. +. $K. c. E$. d. $?. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e 73.

Refer to Fi+ure 7&(3. Euyers who ,alue this )ood less than the e.uili+rium %rice are re%resented +y which line se)mentD a. A$. +. $K. c. E$. d. $?. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: Inter%reti,e 77.

Refer to Fi+ure 7&(3/ Sellers whose costs are less than the e.uili+rium %rice are re%resented +y which line se)mentD a. A$. +. $K. c. E$. d. $?.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: $ NA!: Analytic 'S$: Inter%reti,e 75. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

(3-

Refer to Fi+ure 7&(3. Sellers whose costs are )reater than the e.uili+rium %rice are re%resented +y se)ment a. A$. +. $K. c. E$. d. $?. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: D NA!: Analytic 'S$: Inter%reti,e 76.

Refer to Fi+ure 7&(3. If the )o,ernment mandated a %rice increase from &1 to a hi)her %rice/ then a. total sur%lus would decrease. +. consumer sur%lus would increase. c. total sur%lus would increase/ since %roducer sur%lus would increase. d. total sur%lus would remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: A NA!: Analytic 'S$: Inter%reti,e Figure 7-19

Price

Su%%ly

&(

&1

&-

Demand
H( H1 HQuantity

57.

Refer to Fi+ure 7&(4. At the .uantity H-/ a. the mar4et is in e.uili+rium. +. consumer sur%lus is ma*imi@ed. c. the sum of consumer sur%lus and %roducer sur%lus is ma*imi@ed. d. the mar)inal ,alue to +uyers is less than the mar)inal cost to sellers. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: D NA!: Analytic 'S$: Inter%reti,e 51.

Refer to Fi+ure 7&(4. At the .uantity H(/ the mar)inal ,alue to +uyers a. and the mar)inal cost to sellers are +oth &(. +. is &(/ and the mar)inal cost to sellers is &-. c. and the mar)inal cost to sellers are +oth &-. d. is &-/ and the mar)inal cost to sellers is &(. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: Inter%reti,e

(31
5(.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Inefficiency e*ists in an economy when a )ood is a. not +ein) consumed +y +uyers who ,alue it most hi)hly. +. not distri+uted fairly amon) +uyers. c. not %roduced +ecause +uyers do not ,alue it ,ery hi)hly. d. +ein) %roduced with less than all a,aila+le resources. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: A NA!: Analytic 'S$: Inter%reti,e 5-.

Inefficiency e*ists in an economy when a )ood is a. +ein) %roduced with less than all a,aila+le resources. +. not distri+uted fairly amon) +uyers. c. not +ein) %roduced +y the lowest cost %roducers. d. +ein) consumed +y +uyers who ,alue it most hi)hly. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: $ NA!: Analytic 'S$: Inter%reti,e 51.

!he Cin,isi+le handC refers to a. the mar4et%lace )uidin) the self interests of mar4et %artici%ants into %romotin) )eneral economic well +ein). +. the fact that social %lanners sometimes ha,e to inter,ene/ e,en in %erfectly com%etiti,e mar4ets/ to ma4e those mar4ets more efficient. c. the e.uality that results from mar4et forces allocatin) the )oods %roduced in the mar4et. d. the automatic ma*imi@ation of consumer sur%lus in free mar4ets. DIF: ( REF: "#$: Su%%ly and demand 7!#&: In,isi+le hand

ANS: A NA!: Analytic 'S$: Inter%reti,e 52.

!he Cin,isi+le handC is a. used to descri+e the welfare system in the Bnited States. +. a conce%t de,elo%ed +y Adam Smith to descri+e the ,irtues of free mar4ets. c. a conce%t used +y 8.'. Keynes to descri+e the role of )o,ernment in )uidin) the allocation of resources in the economy. d. a term used +y some economists to characteri@e the role of )o,ernment in an economy P ine,ita+le +ut in,isi+le. DIF: ( REF: "#$: Su%%ly and demand 7!#&: In,isi+le hand

ANS: E NA!: Analytic 'S$: Inter%reti,e 53.

Laissez-faire is a French e*%ression which literally means a. to ma4e do. +. to )et in,ol,ed. c. whate,er wor4s. d. allow them to do. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: "aisse@ faire %olicy

ANS: D NA!: Analytic 'S$: Definitional 57.

!he French e*%ression used +y free mar4et ad,ocates/ which literally translates as Callow them to do/C is a. laissez-faire. +. je ne sais pas. c. si l !ous plait. d. t"te-#-t"te. DIF: 1 REF: "#$: Su%%ly and demand 7!#&: "aisse@ faire %olicy

ANS: A NA!: Analytic 'S$: Definitional

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets 55. If the )o,ernment allowed a free mar4et for trans%lant or)ans such as 4idneys to e*ist/ the a. shorta)e of or)ans would +e eliminated/ and there would +e no sur%lus of or)ans. +. shorta)e of or)ans would +e eliminated/ +ut a sur%lus of or)ans would de,elo%. c. shorta)e of or)ans would %ersist. d. o,erall well +ein) of society would remain unchan)ed. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

(32

ANS: A NA!: Analytic 'S$: Inter%reti,e 56.

If the )o,ernment allowed a free mar4et for trans%lant or)ans such as 4idneys to e*ist/ critics ar)ue that such a mar4et would a. not reduce the shorta)e of or)ans. +. +enefit rich %eo%le +ut not %oor %eo%le. c. +e inefficient +ecause mar4ets are not )ood at allocatin) scarce resources. d. +e inferior to a %lan im%osed +y a +ene,olent dictator. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: Inter%reti,e 67.

At %resent/ the ma*imum le)al %rice for a human 4idney is 97. !he %rice of 97 ma*imi@es a. consumer sur%lus +ut not %roducer sur%lus. +. %roducer sur%lus +ut not consumer sur%lus. c. +oth consumer and %roducer sur%lus. d. neither consumer nor %roducer sur%lus. 7'S$: A%%licati,e

ANS: D DIF: ( REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 61.

Accordin) to many economists/ )o,ernment restrictions on tic4et scal%in) do all of the followin) except a. incon,enience the %u+lic. +. reduce the audience for cultural and s%orts e,ents. c. waste %olice officersJ time. d. 4ee% the cost of tic4ets to all consumers low. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: D NA!: Analytic 'S$: Inter%reti,e 6(.

Economists tend to see tic4et scal%in) as a. a way for a few to %rofit without %roducin) anythin) of ,alue. +. an ine.uita+le interference in the orderly %rocess of tic4et distri+ution. c. a way of increasin) the efficiency of tic4et distri+ution. d. an un%roducti,e acti,ity which should +e made ille)al e,erywhere. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: $ NA!: Analytic 'S$: Inter%reti,e 6-.

'any economists +elie,e that restrictions a)ainst tic4et scal%in) result in each of the followin) except a. a smaller audience for cultural and s%ortin) e,ents. +. shorter lines at cultural and s%ortin) e,ents. c. less ta* re,enue for the state. d. an increase in tic4et %rices. DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

ANS: E NA!: Analytic 'S$: Inter%reti,e

(33
61.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets Su%%ose that the e.uili+rium %rice in the mar4et for wid)ets is 92. If a law increased the minimum le)al %rice for wid)ets to 93/ %roducer sur%lus a. would necessarily increase e,en if the hi)her %rice resulted in a sur%lus of wid)ets. +. would necessarily decrease +ecause the hi)her %rice would create a sur%lus of wid)ets. c. mi)ht increase or decrease. d. would +e unaffected. DIF: REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

ANS: $ NA!: Analytic 'S$: Analytical 62.

Su%%ose that the e.uili+rium %rice in the mar4et for wid)ets is 92. If a law reduced the ma*imum le)al %rice for wid)ets to 91/ a. any %ossi+le increase in consumer sur%lus would +e lar)er than the loss of %roducer sur%lus. +. any %ossi+le increase in consumer sur%lus would +e smaller than the loss of %roducer sur%lus. c. the resultin) increase in %roducer sur%lus would +e lar)er than any %ossi+le loss of consumer sur%lus. d. the resultin) increase in %roducer sur%lus would +e smaller than any %ossi+le loss of consumer sur%lus. 7'S$: Analytical

ANS: E DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 63.

Su%%ose that the e.uili+rium %rice in the mar4et for wid)ets is 92. If a law increased the minimum le)al %rice for wid)ets to 93/ a. the resultin) increase in consumer sur%lus would +e lar)er than any %ossi+le loss of %roducer sur%lus. +. the resultin) increase in consumer sur%lus would +e smaller than any %ossi+le loss of %roducer sur%lus. c. any %ossi+le increase in %roducer sur%lus would +e lar)er than the loss of consumer sur%lus. d. any %ossi+le increase in %roducer sur%lus would +e smaller than the loss of consumer sur%lus. 7'S$: Analytical

ANS: D DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 67.

!otal sur%lus in a mar4et will increase when the )o,ernment a. im%oses a +indin) %rice floor or a +indin) %rice ceilin) on that mar4et. +. im%oses a ta* on that mar4et. c. Eoth a and + are correct. d. Neither a nor + is correct. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: D NA!: Analytic 'S$: A%%licati,e 65.

!otal sur%lus in a mar4et will increase when the )o,ernment a. im%oses a ta* on that mar4et. +. im%oses a +indin) %rice floor on that mar4et. c. remo,es a +indin) %rice ceilin) from that mar4et. d. None of the a+o,e is correct. DIF: REF: "#$: Su%%ly and demand 7!#&: !otal sur%lus

ANS: $ NA!: Analytic 'S$: A%%licati,e 66.

If a mar4et is allowed to adNust freely to its e.uili+rium %rice and .uantity/ then an increase in demand will a. increase %roducer sur%lus. +. reduce %roducer sur%lus. c. not affect %roducer sur%lus. d. Any of the a+o,e are %ossi+le.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: A NA!: Analytic 'S$: A%%licati,e DIF: ( REF: "#$: Su%%ly and demand 7!#&: &roducer sur%lus

(37

177. If a mar4et is allowed to mo,e freely to its e.uili+rium %rice and .uantity/ then an increase in su%%ly will a. increase consumer sur%lus. +. reduce consumer sur%lus. c. not affect consumer sur%lus. d. Any of the a+o,e are %ossi+le. ANS: A NA!: Analytic 'S$: A%%licati,e DIF: ( REF: "#$: Su%%ly and demand 7!#&: $onsumer sur%lus

171. A simultaneous increase in +oth the demand for '&- %layers and the su%%ly of '&- %layers would im%ly that a. +oth the ,alue of '&- %layers to consumers and the cost of %roducin) '&- %layers has increased. +. +oth the ,alue of '&- %layers to consumers and the cost of %roducin) '&- %layers has decreased. c. the ,alue of '&- %layers to consumers has decreased/ and the cost of %roducin) '&- %layers has increased. d. the ,alue of '&- %layers to consumers has increased/ and the cost of %roducin) '&- %layers has decreased. ANS: D NA!: Analytic 'S$: Inter%reti,e DIF: ( REF: "#$: Su%%ly and demand 7!#&: Efficiency

17(. Raisin +ran and mil4 are com%lementary )oods. A decrease in the %rice of raisins will a. increase consumer sur%lus in the mar4et for raisin +ran and decrease %roducer sur%lus in the mar4et for mil4. +. increase consumer sur%lus in the mar4et for raisin +ran and increase %roducer sur%lus in the mar4et for mil4. c. decrease consumer sur%lus in the mar4et for raisin +ran and increase %roducer sur%lus in the mar4et for mil4. d. decrease consumer sur%lus in the mar4et for raisin +ran and decrease %roducer sur%lus in the mar4et for mil4. ANS: E DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 7'S$: A%%licati,e

17-. $offee and tea are su+stitutes. Ead weather that shar%ly reduces the coffee +ean har,est would a. increase consumer sur%lus in the mar4et for coffee and decrease %roducer sur%lus in the mar4et for tea. +. increase consumer sur%lus in the mar4et for coffee and increase %roducer sur%lus in the mar4et for tea. c. decrease consumer sur%lus in the mar4et for coffee and increase %roducer sur%lus in the mar4et for tea. d. decrease consumer sur%lus in the mar4et for coffee and decrease %roducer sur%lus in the mar4et for tea. ANS: $ DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 7'S$: A%%licati,e

(35

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets

171. &layStations and &laySation )ames are com%lementary )oods. A technolo)ical ad,ance in the %roduction of &layStations will a. increase consumer sur%lus in the mar4et for &layStations and decrease %roducer sur%lus in the mar4et for &layStation )ames. +. increase consumer sur%lus in the mar4et for &layStations and increase %roducer sur%lus in the mar4et for &layStation )ames. c. decrease consumer sur%lus in the mar4et for &layStations and increase %roducer sur%lus in the mar4et for &layStation )ames. d. decrease consumer sur%lus in the mar4et for &layStations and decrease %roducer sur%lus in the mar4et for &layStation )ames. ANS: E DIF: REF: NA!: Analytic "#$: Su%%ly and demand !#&: $onsumer sur%lus A &roducer sur%lus 7'S$: A%%licati,e

ec%0 & Consumers, Producers, and the Efficiency of Markets & Conc)usion
MULT'PLE C!"'CE 1. Which of the followin) statements is not correctD a. An in,isi+le hand leads +uyers and sellers to an e.uili+rium that ma*imi@es total sur%lus. +. 'ar4et %ower can cause mar4ets to +e inefficient. c. E*ternalities can cause mar4ets to +e inefficient. d. !he in,isi+le hand can remedy most if not all ty%es of mar4et failures.

ANS: D DIF: ( REF: 7 1 NA!: Analytic "#$: Su%%ly and demand !#&: 'ar4et failure A E*ternalities 'S$: Inter%reti,e (. Inefficiency can +e caused in a mar4et +y the %resence of a. mar4et %ower. +. e*ternalities. c. im%erfectly com%etiti,e mar4ets. d. All of the a+o,e are correct. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar4et failure

ANS: D NA!: Analytic 'S$: Inter%reti,e -.

'ar4et %ower refers to the a. side effects that may occur in a mar4et. +. )o,ernment re)ulations im%osed on the sellers in a mar4et. c. a+ility of mar4et %artici%ants to influence %rice. d. forces of su%%ly and demand in determinin) e.uili+rium %rice. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: 'ar4et %ower

ANS: $ NA!: Analytic 'S$: Definitional 1.

E*ternalities are a. side effects %assed on to a %arty other than the +uyers and sellers in the mar4et. +. side effects of )o,ernment inter,ention in mar4ets. c. e*ternal forces that cause the %rice of a )ood to +e hi)her than it otherwise would +e. d. e*ternal forces that hel% esta+lish e.uili+rium %rice. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: E*ternalities

ANS: A NA!: Analytic 'S$: Definitional 2.

!he decisions of +uyers and sellers that affect %eo%le who are not %artici%ants in the mar4et create a. mar4et %ower. +. e*ternalities. c. %rofiteerin). d. mar4et e.uili+rium.

$ha%ter 7:$onsumers/ &roducers/ and the Efficiency of 'ar4ets ANS: E NA!: Analytic 'S$: Definitional 3. DIF: 1 REF: "#$: Su%%ly and demand 71 !#&: E*ternalities

(36

'ar4et failure is the ina+ility of a. +uyers to interact harmoniously with sellers in the mar4et. +. a mar4et to esta+lish an e.uili+rium %rice. c. +uyers to %lace a ,alue on the )ood or ser,ice. d. some unre)ulated mar4ets to allocate resources efficiently. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar4et failure

ANS: D NA!: Analytic 'S$: Definitional 7.

When mar4ets fail/ %u+lic %olicy can a. do nothin) to im%ro,e the situation. +. %otentially remedy the %ro+lem and increase economic efficiency. c. always remedy the %ro+lem and increase economic efficiency. d. in theory/ remedy the %ro+lem/ +ut in %ractice/ %u+lic %olicy has %ro,en to +e ineffecti,e. DIF: ( REF: "#$: Su%%ly and demand 71 !#&: 'ar4et failure

ANS: E NA!: Analytic 'S$: Inter%reti,e