Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 465

Sec01 - Consumers, Producers, and the Efficiency of Markets - Consumer Surplus

MULTIPLE CHOICE1.

The maximum price that a buyer will pay for a good is called the

a. cost.

b. willingness to pay. c. equity. d. efficiency.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional2.

TOP: Willingness to pay

Suppose Larry, Moe and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional3.

TOP: Willingness to pay

Suppose Chris and Laura attend a charity benefit and participate in a silent auction. Each has in mind a

maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. deadweight loss. b. willingness to pay. c. consumer surplus. d. producer surplus.

DIF: 1 REF: 7-1 LOC: Supply and demand

ANS: B

NAT: Analytic MSC: Definitional4.

TOP: Willingness to pay

Willingness to pay

a. measures the value that a buyer places on a good.

b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing

to accept.

c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to

accept.

d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional5.

TOP: Willingness to pay

A consumer's willingness to pay directly measures

a. the extent to which advertising and other external forces have influenced the consumer’s

preferences.

b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

DIF: 2 REF: 7-1 TOP: Willingness to pay

MSC: Interpretive

ANS: C

NAT: Analytic

466 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 6.

When a buyer’s willingness to pay for a good is equal to the price of the good, the

a. buyer’s consumer surplus for that good is maximized.

b. buyer will buy as much of the good as the buyer’s budget allows. c. price of the good exceeds the value that the buyer places on the good. d. buyer is indifferent between buying the good and not buying it.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive7.

TOP: Willingness to pay

In which of the following circumstances would a buyer be indifferent about buying a good?

a. The amount of consumer surplus the buyer would experience as a result of buying the good is zero. b. The price of the good is equal to the buyer’s willingness to pay for the good. c. The price of the good is equal to the value the buyer places on the good. d. All of the above are correct.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive8.

TOP: Willingness to pay

A demand curve reflects each of the following except the a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good.

c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: D

NAT: Analytic MSC: Interpretive9.

TOP: Willingness to pay

Consumer surplus is

a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good.

c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.

DIF: 2 REF: 7-1 LOC: Supply and demand

ANS: A

NAT: Analytic MSC: Definitional

TOP: Consumer surplus

10. Consumer surplus

a. is the amount of a good that a consumer can buy at a price below equilibrium price.

b. is the amount a consumer is willing to pay minus the amount the consumer actually pays. c. is the number of consumers who are excluded from a market because of scarcity. d. measures how much a seller values a good.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

11. Consumer surplus is the

a. amount of a good consumers get without paying anything.

b. amount a consumer pays minus the amount the consumer is willing to pay.

c. amount a consumer is willing to pay minus the amount the consumer actually pays. d. value of a good to a consumer.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 467

12. Consumer surplus is equal to the

a. Value to buyers - Amount paid by buyers. b. Amount paid by buyers - Costs of sellers. c. Value to buyers - Costs of sellers.

d. Value to buyers - Willingness to pay of buyers.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

13. On a graph, the area below a demand curve and above the price measures

a. producer surplus. b. consumer surplus. c. deadweight loss. d. willingness to pay.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

14. On a graph, consumer surplus is represented by the area

a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve.

d. below the demand curve and to the right of equilibrium price.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

15. Consumer surplus in a market can be represented by the

a. area below the demand curve and above the price. b. distance from the demand curve to the horizontal axis. c. distance from the demand curve to the vertical axis.

d. area below the demand curve and above the horizontal axis.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

16. Consumer surplus is

a. a concept that helps us make normative statements about the desirability of market outcomes. b. represented on a graph by the area below the demand curve and above the price. c. a good measure of economic welfare if buyers' preferences are the primary concern. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

17. In a market, the marginal buyer is the buyer

a. whose willingness to pay is higher than that of all other buyers and potential buyers. b. whose willingness to pay is lower than that of all other buyers and potential buyers. c. who is willing to buy exactly one unit of the good.

d. who would be the first to leave the market if the price were any higher.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Marginal buyer

468 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Table 7-1 Buyer Mike Sandy Jonathan Haley Willingness To Pay $50.00 $30.00 $20.00 $10.00 18. Refer to Table 7-1. If the price of the product is $15, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan

d. Mike, Sandy, Jonathan, and Haley

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

19. Refer to Table 7-1. If the price of the product is $22, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan

d. Mike, Sandy, Jonathan, and Haley

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

20. Refer to Table 7-1. If the price of the product is $51, then who would be willing to purchase the product?

a. Mike

b. Mike and Sandy

c. Mike, Sandy, and Jonathan d. no one

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Willingness to pay

21. Refer to Table 7-1. If the price of the product is $18, then the total consumer surplus is

a. $38. b. $42. c. $46. d. $72.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

22. Refer to Table 7-1. If price of the product is $30, then the total consumer surplus is

a. $-10. b. $-6. c. $20. d. $30.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus