ECW1101 Practice Questions

Consumers, Producers, and the Efficiency of Markets

Figure 7-1

P
350

300

250

200

150

100

50 Demand

1 2 3 4 5 Q

1. Refer to Figure 7-1. If the price of the good is $250, then consumer surplus amounts to
a. $50.*
b. $100.
c. $150.
d. $200.

2. Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to
a. $150.
b. $200.
c. $250.*
d. $300.

3. Refer to Figure 7-1. If the price of the good is $50, then consumer surplus amounts to
a. $400.
b. $500.
c. $600.*
d. $750.

4. Refer to Figure 7-1. If the price of the good is $200, then

a. consumer surplus is $150.*
b. consumer surplus is $650.
c. producer surplus is $650.
d. producer surplus is $750.

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Figure 7-5
Price
170

160

150 Supply
140

130

120

110

100

90

80

70

60

50

40

30

20

10
Demand
25 Quantity
2 4 5 6 8 10 12 14 16 18 20 22 24 26 28

5. Refer to Figure 7-5. At the equilibrium price, consumer surplus is

a. $200.
b. $300.*
c. $500.
d. $600.

6. Refer to Figure 7-5. If the government imposes a price floor of $120 in this market, then
consumer surplus will decrease by
a. $75.
b. $125.
c. $225.*
d. $300.

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Figure 7-6
Price

250

225

200

175

150

125

100

75

50

25
Demand
25 50 75 100 125 150 Quantity

7. Refer to Figure 7-6. What is the consumer surplus if the price is $100?
a. $2,500*
b. $5,000
c. $10,000
d. $20,000

8. Refer to Figure 7-6. What happens to the consumer surplus if the price rises from $100 to $150?
a. The new consumer surplus is half of the original consumer surplus.
b. The new consumer surplus is 25 percent of the original consumer surplus.*
c. The new consumer surplus is double the original consumer surplus.
d. The new consumer surplus is triple the original consumer surplus.

9. When the supply of a good increases and the demand for the good remains unchanged, consumer
surplus
a. decreases.
b. is unchanged.
c. increases.*
d. may increase, decrease, or remain unchanged.

10. Which of the following is true when the price of a good or service rises?
a. Buyers who were already buying the good or service are better off.
b. Some buyers exit the market.*
c. The total consumer surplus in the market increases.
d. The total value of purchases before and after the price change is the same.

11. Motor oil and gasoline are complements. If the price of motor oil decreases, consumer surplus in
the gasoline market
a. decreases.
b. is unchanged.
c. increases.
d. may increase, decrease, or remain unchanged.*

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12. What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of
iPods experience an increase in income?
a. Consumer surplus decreases.
b. Consumer surplus remains unchanged.
c. Consumer surplus increases.
d. Consumer surplus may increase, decrease, or remain unchanged.*

13. As a result of a decrease in price,

a. new buyers enter the market, increasing consumer surplus.*
b. new buyers enter the market, decreasing consumer surplus.
c. existing buyers exit the market, increasing consumer surplus.
d. existing buyers exit the market, decreasing consumer surplus.

14. A seller’s opportunity cost measures the

a. value of everything she must give up to produce a good.*
b. amount she is paid for a good minus her cost of providing it.
c. consumer surplus.
d. out of pocket expenses to produce a good but not the value of her time.

15. Justin builds fences for a living. Justin’s out-of-pocket expenses (for wood, paint, etc.) plus the
value that he places on his own time amount to his
a. producer surplus.
b. producer deficit.
c. cost of building fences.*
d. profit.

16. A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. quantity supplied.
c. sellers' costs.*
d. the amount that will be purchased by consumers in the market.

17. A seller is willing to sell a product only if the seller receives a price that is at least as great as the
a. seller’s producer surplus.
b. seller’s cost of production.*
c. seller’s profit.
d. average willingness to pay of buyers of the product.

18. Producer surplus is

a. measured using the demand curve for a good.
b. always a negative number for sellers in a competitive market.
c. the amount a seller is paid minus the cost of production.*
d. the opportunity cost of production minus the cost of producing goods that go unsold.

19. Producer surplus measures the

a. benefits to sellers of participating in a market.*
b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service.
d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.

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20. A seller’s willingness to sell is
a. measured by the seller’s cost of production.
b. related to her supply curve, just as a buyer’s willingness to buy is related to his demand
curve.
c. less than the price received if producer surplus is a positive number.
d. All of the above are correct.*

21. Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to
pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she
is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75,
and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to
sharpen. Her producer surplus is
a. $0.95.
b. $1.15.
c. $1.30.
d. $1.85.*

22. Tom tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $155
per tuning. One particular week, Tom is willing to tune the first piano for $120, the second piano
for $125, the third piano for $140, and the fourth piano for $160. Assume Tom is rational in
deciding how many pianos to tune. His producer surplus is
a. $95.
b. $80.*
c. $75.
d. $60.

23. 12. $135 per tuning. One particular week, David is willing to tune the first piano for $115, the
second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is
rational in deciding how many pianos to tune. His producer surplus is
a. $-15.
b. $20.
c. $30.*
d. $75.

Table 7-7
The following table represents the costs of five possible sellers.
Seller Cost
Abby $1,500
Bobby $1,200
Carlos $1,000
Dianne $750
Evalina $500

24. Refer to Table 7-7. If the market price is $1,000, the producer surplus in the market is
a. $700.
b. $750.*
c. $2,250.
d. $3,700.

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25. Refer to Table 7-7. If the market price is $900, the producer surplus in the market is
a. $350.
b. $550.*
c. $750.
d. $1,000.

26. Refer to Table 7-7. If the market price is $1,100, the combined total cost of all participating
sellers is
a. $3,700.
b. $2,700.
c. $2,250.*
d. $1,250.

27. Refer to Table 7-7. If the market price is $900, the combined total cost of all participating sellers
is
a. $3,700.
b. $2,700.
c. $2,250.
d. $1,250.*
Figure 7-8

Price

Supply

A D H
P2

B G
P1

Q1 Q2 Quantity

28. Refer to Figure 7-8. Which area represents producer surplus when the price is P1?
a. BCG*
b. ACH
c. ABGD
d. DGH

29. Refer to Figure 7-8. Which area represents producer surplus when the price is P2?
a. BCG
b. ACH*
c. ABGD
d. AHGB

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30. Refer to Figure 7-8. Which area represents the increase in producer surplus when the price rises
from P1 to P2?
a. BCG
b. ACH
c. ABGD
d. AHGB*

31. Refer to Figure 7-8. When the price rises from P1 to P2, which area represents the increase in
producer surplus to existing producers?
a. BCG
b. ACH
c. DGH
d. ABGD*
Figure 7-9
Price
300

275

250 S' S
225

200

175

150

125

100

75

50

25
D D'

25 50 75 100 125 150 175 200 Quantity

32. Refer to Figure 7-9. If the supply curve is S, the demand curve is D, and the equilibrium price is
$100, what is the producer surplus?
a. $625
b. $1,250
c. $2,500*
d. $5,000

33. Refer to Figure 7-9. If the supply curve is S’, the demand curve is D, and the equilibrium price
is $150, what is the producer surplus?
a. $625*
b. $1,250
c. $2,500
d. $5,000

34. Refer to Figure 7-9. If the demand curve is D and the supply curve shifts from S’ to S, what is
the change in producer surplus?

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 a. Producer surplus increases by $625.
b. Producer surplus increases by $1,875.*
c. Producer surplus decreases by $625.
d. Producer surplus decreases by $1,875.

35. Refer to Figure 7-9. If the supply curve is S and the demand curve shifts from D to D’, what is
the change in producer surplus?
a. Producer surplus increases by $3,125.*
b. Producer surplus increases by $5,625.
c. Producer surplus decreases by $3,125.
d. Producer surplus decreases by $5,625.

36. Refer to Figure 7-9. If the supply curve is S and the demand curve shifts from D to D’, what is
the increase in producer surplus to existing producers?
a. $625
b. $2,500*
c. $3,125
d. $5,625

37. Refer to Figure 7-9. If the supply curve is S and the demand curve shifts from D to D’, what is
the increase in producer surplus due to new producers entering the market?
a. $625*
b. $2,500
c. $3,125
d. $5,625
Figure 7-11
Price
170

160

150 S
140

130

120

110

100

90

80

70

60

50

40

30

20

10
D
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity

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38. Refer to Figure 7-11. At the equilibrium price, producer surplus is
a. $200.*
b. $400.
c. $450.
d. $900.

39. Refer to Figure 7-11. If the government imposes a price ceiling of $70 in this market, then the
new producer surplus will be
a. $50.*
b. $100.
c. $175.
d. $350.

40. Refer to Figure 7-11. If the government imposes a price ceiling of $70 in this market, then
producer surplus will decrease by
a. $50.
b. $125.
c. $150.*
d. $200.

Figure 7-12
Price

Supply

P2
B
A

P1
C G

Q1 Q2 Quantity

41. Refer to Figure 7-12. When the price is P2, producer surplus is
a. A.
b. A+C.
c. A+B+C.*
d. D+G.

42. Refer to Figure 7-12. Suppose producer surplus is larger than C but smaller than A+B+C. The
price of the good must be

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 a. lower than P1.
b. P1.
c. between P1 and P2.*
d. higher than P2.

43. Refer to Figure 7-12. When the price is P1, producer surplus is
a. A.
b. C.*
c. A+B.
d. C+D.

44. Refer to Figure 7-12. When the price falls from P2 to P1, producer surplus
a. decreases by an amount equal to C.
b. decreases by an amount equal to A+B.*
c. decreases by an amount equal to A+C.
d. increases by an amount equal to A+B.

45. Refer to Figure 7-12. When the price rises from P1 to P2, what area represents the increase in
producer surplus?
a. A
b. A+B*
c. A+B+C
d. G

46. Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the increase in
producer surplus to existing producers?
a. A*
b. A+B
c. A+B+C
d. G

47. Refer to Figure 7-12. When the price rises from P1 to P2, which area represents the increase in
producer surplus due to new producers entering the market?
a. A
b. B*
c. A+B
d. G

48. Refer to Figure 7-12. Area A represents

a. producer surplus to new producers entering the market as the result of an increase in price
from P1 to P2.
b. the increase in consumer surplus that results from an upward-sloping supply curve.
c. the increase in total surplus when sellers are willing and able to increase supply from Q1
to Q2.
d. the increase in producer surplus to those producers already in the market when the price
increases from P1 to P2.*

49. Refer to Figure 7-12. Area B represents

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 a. the combined profits of all producers when the price is P2.
b. the increase in producer surplus to all producers as the result of an increase in the price
from P1 to P2.
c. producer surplus to new producers entering the market as the result of an increase in the
price from P1 to P2.*
d. that portion of the increase in producer surplus that is offset by a loss in consumer surplus
when the price increases from P1 to P2.

50. Refer to Figure 7-12. When the price falls from P2 to P1, which of the following would not be
true?
a. The sellers who still sell the good are worse off because they now receive less.
b. Some sellers leave the market because they are not willing to sell the good at the lower
price.
c. The total cost of what is now sold by sellers is actually higher than it was before the
decrease in the price.*

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