Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 477

62. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for

$3.75 per cup. Chad's consumer surplus is a. $8.75. b. $5.00. c. $3.75. d. $1.25.

ANS: D

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

63. Chad is willing to pay $5.00 to get his first cup of morning latté; he is willing to pay $4.50 for a second cup.

He buys his first cup from a vendor selling latté for $3.75 per cup. He returns to that vendor later in the morning to find that the vendor has increased her price to $3.90 per cup. Chad buys a second cup. Which of the following statements is correct?

a. Chad’s willingness to pay for his second cup of latté was smaller than his willingness to pay for his

first cup of latté.

b. Chad’s consumer surplus on his second cup of latté was larger than his consumer surplus on his

first cup of latté.

c. Chad is irrational in that he is willing to pay a different price for his second cup of latté than what

he is willing to pay for his first cup of latté.

d. Chad places a higher value on his second cup of latté than on his first cup of latté.

ANS: A

NAT: Analytic MSC: Analytical

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

TOP: Consumer surplus

64. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350.

Denise's willingness to pay is a. $150. b. $350. c. $500. d. $850.

ANS: C

NAT: Analytic MSC: Applicative

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

TOP: Willingness to pay

65. Denise values a stainless steel dishwasher for her new house at $500, but she succeeds in buying one for $350.

Denise's consumer surplus is a. $150. b. $350. c. $500. d. $850.

ANS: A

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

66. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for

$3,000. Michael's willingness to pay is a. $500. b. $3,000. c. $3,500. d. $6,500.

ANS: C

NAT: Analytic MSC: Applicative

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

TOP: Willingness to pay

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

67. Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for

$3,000. Michael's consumer surplus is a. $500. b. $3,000. c. $3,500. d. $6,500.

ANS: A

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

68. Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is

$650. Denise

a. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150. b. buys the dishwasher, and on her purchase she experiences a consumer surplus of $-150.

c. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $150. d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of $0.

ANS: D

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

69. Ray buys a new tractor for $118,000. He receives consumer surplus of $13,000 on his purchase. Ray's

willingness to pay is a. $13,000. b. $105,000. c. $118,000. d. $131,000.

ANS: D

NAT: Analytic MSC: Applicative

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

TOP: Willingness to pay

70. Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and

realizes consumer surplus of $700. How much did Jeff pay for his computer? a. $700 b. $2,300 c. $3,000 d. $3,700

ANS: B

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

71. Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs

but buys them on sale for $575. Cameron's consumer surplus from the purchase is a. $175. b. $575. c. $750. d. $1,325.

ANS: A

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

72. If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer

surplus relevant to that purchase is a. zero.

b. negative, and the consumer would not purchase the product. c. positive, and the consumer would purchase the product.

d. There is not enough information given to answer this question.

ANS: A

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 479

73. Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to

consumer surplus in the market for lemons? a. Consumer surplus increases. b. Consumer surplus decreases.

c. Consumer surplus is not affected by this change in market forces.

d. We would have to know whether the demand for lemons is elastic or inelastic to make this

determination.

ANS: B

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

74. Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you

bought this week, you paid a price exactly equal to your willingness to pay. Then a. you should buy more tomatoes before the end of the week. b. you already have bought too many tomatoes this week.

c. your consumer surplus on the last tomato you bought is zero.

d. your consumer surplus on all of the tomatoes you have bought this week is zero.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

75. Suppose the market demand curve for a good passes through the point (quantity demanded = 100, price = $25).

If there are five buyers in the market, then

a. the marginal buyer's willingness to pay for the 100th unit of the good is $25.

b. the sum of the five buyers' willingness to pay for the 100th unit of the good is $25. c. the average of the five buyers' willingness to pay for the 100th unit of the good is $25. d. all of the five buyers are willing to pay at least $25 for the 100th unit of the good.

ANS: A

NAT: Analytic MSC: Interpretive

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

TOP: Marginal buyer

76. If the cost of producing sofas decreases, then consumer surplus in the sofa market will

a. increase. b. decrease.

c. remain constant.

d. increase for some buyers and decrease for other buyers.

ANS: A

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

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

a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.

d. Consumer surplus may increase, decrease, or remain unchanged.

ANS: B

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

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

a. Consumer surplus increases. b. Consumer surplus decreases. c. Consumer surplus is unchanged.

d. Consumer surplus may increase, decrease, or remain unchanged.

ANS: A

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

480 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 79. Which of the following will cause an increase in consumer surplus?

a. an increase in the production cost of the good

b. a technological improvement in the production of the good c. a decrease in the number of sellers of the good d. the imposition of a binding price floor in the market

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

80. Which of the following will cause a decrease in consumer surplus?

a. an increase in the number of sellers of the good b. a decrease in the production cost of the good

c. sellers expect the price of the good to be lower next month d. the imposition of a binding price floor in the market

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus

81. When there is a technological advance in the ice cream industry, consumer surplus in that market will

a. increase. b. decrease.

c. not change, since technology affects producers and not consumers.

d. not change, since consumers’ willingness to pay is unaffected by the technological advance.

ANS: A

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

82. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?

a. Consumer surplus increases. b. Consumer surplus decreases.

c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber.

ANS: B

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

83. Which of the following is not true when the price of a good or service falls?

a. Buyers who were already buying the good or service are better off. b. Some new buyers, who are now willing to buy, enter 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.

ANS: D DIF: 2 REF: 7-1 NAT: Analytic LOC: Supply and demand TOP: Consumer surplus | Willingness to pay MSC:

Interpretive

84. When the demand for a good increases and the supply of the good remains unchanged, consumer surplus

a. decreases. b. is unchanged. c. increases.

d. may increase, decrease, or remain unchanged.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 7-1 LOC: Supply and demand

TOP: Consumer surplus