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Exam 7: Consumers, Producers, and the Efficiency of Markets

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Question 21

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The area below the price and above the supply curve measures the producer surplus in a market.

A) True
B) False

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Question 22

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We can say that the allocation of resources is efficient if

A) producer surplus is maximized.
B) consumer surplus is maximized.
C) total surplus is maximized.
D) sellers' costs are minimized.

E) B) and C)
F) A) and C)

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Question 23

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Table 7-9 ​ ​ $\begin{array} { | c | c | } \hline \text { Seller } & \begin{array} { c } \text { Opportunity Cost for } \\\text { Providing 10 Piano Lessons } \\\text { (Dollars) }\end{array} \\\hline \text { Marcia } & 200 \\\hline \text { Jan } & 250 \\\hline \text { Cindy } & 350 \\\hline \text { Greg } & 400 \\\hline \text { Peter } & 700 \\\hline \text { Bobby } & 800 \\\hline\end{array}$ ​ -Refer to Table 7-9. The equilibrium market price for 10 piano lessons is $400. What is the total producer surplus in the market?

Figure 7-7 -Refer to Figure 7-7. If the government imposes a price ceiling of $55 in this market, then total surplus will be

Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs to society of this activity outweigh the benefits.

The cost of production plus producer surplus is the price a seller is paid.

The current policy on kidney donation effectively sets a price ceiling of zero.

Even though participants in the economy are motivated by self-interest, the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

Producer surplus measures the benefit to sellers from receiving a price above their costs.

Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will

Figure 7-4 -Refer to Figure 7-4. Which area represents producer surplus when the price is P₁?

Joel has a 1966 Mustang, which he sells to Susie, an avid car collector. Susie is pleased since she paid $8,000 for the car but would have been willing to pay $11,000 for the car. Susie's consumer surplus is $2,000.

For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

Table 7-11 ​ ​ $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Price } \\\text { (Dollars per unit) }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Quantity Supplied } \\\text { (Units) }\end{array} \\\hline 12.00 & 0 & 36 \\\hline 10.00 & 3 & 30 \\\hline 8.00 & 6 & 24 \\\hline 6.00 & 9 & 18 \\\hline 4.00 & 12 & 12 \\\hline 2.00 & 15 & 6 \\\hline 0.00 & 18 & 0 \\\hline\end{array}$ ​ -Refer to Table 7-12. Both the demand curve and the supply curve are straight lines. At equilibrium, producer surplus is

Table 7-3 ​ ​ $\begin{array}{|c|c|}\hline \text { Buyer } & \begin{array}{c}\text { Willingness to Pay for a } \\\text { Baseball Game Ticket } \\\text { (Dollars) }\end{array} \\\hline \text { Nancy } & 10 \\\hline \text { Tom } & 15 \\\hline \text { David } & 20 \\\hline \text { Alexa } & 25 \\\hline \text { Eric } & 30 \\\hline \text { Chen } & 35 \\\hline\end{array}$ ​ -Refer to Table 7-3. If you have 3 (essentially) identical tickets that you sell to the group in an auction, assuming that each person can only buy one ticket, which of the following is closest to the selling price for each ticket?

If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.

Jim builds furniture for a living. Jim's out-of-pocket expenses (for wood, paint, etc.) plus the value that he places on his own time amount to his

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

Table 7-10 ​ ​ $\begin{array} { | c | c | } \hline \text { Seller } & \begin{array} { c } \text { Cost } \\\text { (Dollars) }\end{array} \\\hline \text { LeBron } & 700 \\\hline \text { Kobe } & 600 \\\hline \text { Kevin } & 450 \\\hline \text { Steve } & 400 \\\hline\end{array}$ ​ -Refer to Table 7-10. You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. Which of the following graphs represents the market supply curve?

Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and distributed.