Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 485

Figure 7-4

Price1701601501401301201101009080706050403020102456810121416182022SupplyDemand25242628Quantity100. Refer to Figure 7-4. At the equilibrium price, consumer surplus is

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

ANS: B

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

101. Refer to Figure 7-4. 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.

ANS: C

NAT: Analytic MSC: Applicative

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

TOP: Consumer surplus

486 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets Figure 7-5

Price2502252001751501251007550252550Demand75100125150Quantity102. Refer to Figure 7-5. What is the consumer surplus if the price is $100?

a. $2,500 b. $5,000 c. $10,000 d. $20,000

ANS: A

NAT: Analytic MSC: Analytical

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

TOP: Consumer surplus

103. Refer to Figure 7-5. 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.

ANS: B

NAT: Analytic MSC: Analytical

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

TOP: Consumer surplus

104. Consumer surplus is a good measure of economic welfare if policymakers want to

a. maximize total benefit. b. minimize deadweight loss.

c. respect the preferences of sellers. d. respect the preferences of buyers.

ANS: D

NAT: Analytic MSC: Interpretive

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

TOP: Consumer surplus

Sec02 - Consumers, Producers, and the Efficiency of Markets - Producer Surplus

MULTIPLE CHOICE

1.

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.

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

ANS: A

NAT: Analytic MSC: Definitional

TOP: Cost

Chapter 7/Consumers, Producers, and the Efficiency of Markets ? 487

2.

Cost is a measure of the

a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage.

d. seller's willingness to buy.

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

ANS: A

NAT: Analytic MSC: Interpretive3.

TOP: Cost

Ally mows lawns for a living. Ally’s out-of-pocket expenses (for equipment, gasoline, and so on) plus the value that she places on her own time amount to her a. producer surplus. b. producer deficit.

c. cost of mowing lawns. d. profit.

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

ANS: C

NAT: Analytic MSC: Definitional4.

TOP: Cost

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.

ANS: C DIF: 2 REF: 7-2 NAT: Analytic LOC: Supply and demand TOP: Producer surplus | Supply curve MSC: Interpretive5.

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. sellers’s cost of production. c. seller’s profit.

d. average willingness to pay of buyers of the product.

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

ANS: B

NAT: Analytic MSC: Interpretive6.

TOP: Cost

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.

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

ANS: C

NAT: Analytic MSC: Definitional7.

TOP: Producer surplus

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.

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

ANS: A

NAT: Analytic MSC: Interpretive

TOP: Producer surplus

488 ? Chapter 7/Consumers, Producers, and the Efficiency of Markets 8.

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.

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

ANS: D

NAT: Analytic MSC: Interpretive9.

TOP: Producer surplus

Karen sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Karen is rational in deciding how many knives to sharpen. Her producer surplus is a. $0.25. b. $0.50. c. $1.00. d. $1.75.

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

ANS: C

NAT: Analytic MSC: Analytical

TOP: Producer surplus

10. Anita sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $3.50 per

knife for as many knives as Anita is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.50, the third knife for $3.00, and the fourth knife for $3.50. Assume Anita is rational in deciding how many knives to sharpen. Her producer surplus is a. $3.50. b. $3.00. c. $2.00. d. $0.50.

ANS: B

NAT: Analytic MSC: Analytical

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

TOP: Producer surplus

11. David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $150 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. $25. b. $35. c. $70. d. $95.

ANS: C

NAT: Analytic MSC: Analytical

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

TOP: Producer surplus

12. David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $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.

ANS: C

NAT: Analytic MSC: Analytical

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

TOP: Producer surplus