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Consumers, Producers, and the Efficiency of Marketchapter7
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9/12/24, 3:58 Chapter 7 - M/C withPM answers
Chapter 7
Consumers, Producers, and the Efficiency of Markets
TRUE/FALSE
1. Welfare economics is the study of the welfare
system. ANS: F
2. The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much
the buyer values the good.
ANS: T
3. For any given quantity, the price on a demand curve represents the marginal buyer's willingness to
pay. ANS: T
4. A buyer is willing to buy a product at a price greater than or equal to his willingness to pay, but would
refuse to buy a product at a price less than his willingness to pay.
ANS: F
5. Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is
willing to pay for it.
ANS: F
6. Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually
has to pay for it.
ANS: T
7. Consumer surplus measures the benefit to buyers of participating in a
market. ANS: T
8. Consumer surplus can be measured as the area between the demand curve and the equilibrium
price. ANS: T
9. Consumer surplus can be measured as the area between the demand curve and the supply
curve. ANS: F
10. 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.
ANS: F
197
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198 Chapter 7/Consumers, Producers, and the Efficiency of Markets
11. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is
$10. ANS: T
12. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is
$90. ANS: F
13. All else equal, an increase in supply will cause an increase in consumer
surplus. ANS: T
14. Suppose there is an increase in supply that reduces market price. Consumer surplus increases because
(1) consumer surplus received by existing buyers increases and (2) new buyers enter the market.
ANS: T
15. If the government imposes a binding price floor in a market, then the consumer surplus in that market
will increase.
ANS: F
16. If the government imposes a binding price floor in a market, then the consumer surplus in that market
will decrease.
ANS: T
17. Each seller of a product is willing to sell as long as the price he or she can receive is greater than
the opportunity cost of producing the product.
ANS: T
18. At any quantity, the price given by the supply curve shows the cost of the lowest-cost
seller. ANS: F
19. In a competitive market, sales go to those producers who are willing to supply the product at the lowest
price. ANS: T
20. Producer surplus is the amount a seller is paid minus the cost of
production. ANS: T
21. Producer surplus is the cost of production minus the amount a seller is
paid. ANS: F
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Chapter 7/Consumers, Producers, and the Efficiency of Markets 199
22. All else equal, an increase in demand will cause an increase in producer
surplus. ANS: T
23. All else equal, a decrease in demand will cause an increase in producer
surplus. ANS: F
24. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is
$45. ANS: F
25. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is
$35. ANS: T
26. Connie can clean windows in large office buildings at a cost of $1 per window. The market price for
window- cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $100.
ANS: F
27. Connie can clean windows in large office buildings at a cost of $1 per window. The market price for
window- cleaning services is $3 per window. If Connie cleans 100 windows, her producer surplus is $200.
ANS: T
28. The area below the price and above the supply curve measures the producer surplus in a
market. ANS: T
29. The area below the demand curve and above the supply curve measures the producer surplus in a
market. ANS: F
30. If the government imposes a binding price ceiling in a market, then the producer surplus in that market
will increase.
ANS: F
31. When demand increases so that market price increases, producer surplus increases because (1)
producer surplus received by existing sellers increases, and (2) new sellers enter the market.
ANS: T
32. Total surplus in a market is consumer surplus minus producer
surplus. ANS: F
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200 Chapter 7/Consumers, Producers, and the Efficiency of Markets
33. Total surplus = Value to buyers - Costs to
sellers. ANS: T
34. Total surplus in a market can be measured as the area below the supply curve plus the area above the
demand curve, up to the point of equilibrium.
ANS: F
35. Producing a soccer ball costs Jake $5. He sells it to Darby for $35. Darby values the soccer ball at $50.
For this transaction, the total surplus in the market is $40.
ANS: F
36. The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers
of participating in that market.
ANS: T
37. Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum
amount of output was produced from a given number of inputs.
ANS: F
38. Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced
and distributed.
ANS: T
39. Free markets allocate (a) the supply of goods to the buyers who value them most highly and (b) the
demand for goods to the sellers who can produce them at least cost.
ANS: T
40. Economists generally believe that, although there may be advantages to society from ticket-scalping, the
costs to society of this activity outweigh the benefits.
ANS: F
41. Economists argue that restrictions against ticket scalping actually drive up the cost of many
tickets. ANS: T
42. If the United States legally allowed for a market in transplant organs, it is estimated that one kidney would
sell for at least $100,000.
ANS: F
43. 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.
ANS: T
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