1. Which of the
following best explains the source of consumer surplus for good A?
a. Many consumers would be willing to pay more than the
market price for good A.
b. Many consumers pay prices that are greater than the
equilibrium price of good A.
c. Many consumers think the market price of good A is
greater than its cost.
d. Many consumers think the price elasticity of demand for
good A is unit elastic
.
2. If you had been
willing to pay $2.19 for the gallon of milk purchased at the supermarket but
were required to pay only $1.89, you have gained
a. a refund of $.30 from the clerk.
b. a consumer surplus amounting to $.30.
c. excess marginal benefit of $2.19.
d. producer surplus of $.30.
3. The demand curve
shows the
a. highest price buyers actually pay for each unit of a good
and the amount they would buy.
b. highest price buyers would be willing and able to pay for
each unit of the good or the amount purchased at each price.
c. consumer surplus buyers gain from each unit of the good
if they were to purchase it.
d. enjoyment consumers get from each unit of the good if
they were to purchase it.
4. If demand
increases when supply is perfectly elastic, then
a. consumer surplus will remain the same.
b. consumer surplus will increase.
c. it is not possible to predict the change in consumer
surplus.
d. consumer surplus will decrease with the increase in
price.
5. Consumer surplus
tends to be small when
a. demand is elastic.
b. supply is elastic.
c. demand is inelastic.
d. supply is inelastic.
6. This diagram shows
the demand for trips across a bridge that spans the Hudson River. If the price
of crossing the bridge is zero, consumer surplus is
a. $25.
b. $50.
c. $625.
d. $1250.
7. This diagram shows
the demand for trips across a bridge that spans the Hudson River. If the price
of crossing the bridge is $6.00, consumer surplus is
a. $22.
b. $46.
c. $484.
d. $968.
8. Which of the
following statements is correct?
a. The price of a good reflects its value to the consumer.
b. Consumer surplus can be high for a low-priced good and
low for a high-priced good.
c. The price of water is low relative to that of diamonds
because the government provides water at affordable rates for households as a
public service.
d. The water-diamond paradox shows the limitations of
economic theory.
9. The area
underneath a demand curve down to the equilibrium price is
a. always less than the area under the supply curve.
b. always greater than the area under the supply curve.
c. consumer surplus.
d. producer surplus.
10. The benefit to a
producer of selling a good at the equilibrium price is called
a. producer surplus.
b. consumer surplus.
c. welfare economies.
d. efficiency gain.
11. Sellers’ costs of
producing various units of the good are shown by the
a. height of the demand curve.
b. width of the demand curve.
c. width of the supply curve.
d. height of the supply curve.
12. Producer surplus
tends to be large when
a. supply is elastic.
b. demand is elastic.
c. supply is inelastic.
d. demand is inelastic.
13. This diagram
shows the market for swordfish, in equilibrium at $20 per pound. At this price
consumer surplus is
a. $5.00.
b. $12.50.
c. $50.00.
d. $62.50.
14. This diagram shows
the market for swordfish, in equilibrium at $20 per pound. At this price
producer surplus is
a. $5.00.
b. $12.50.
c. $50.00.
d. $62.50.
15. This diagram
shows the market for swordfish in equilibrium at $20 per pound. If the
government imposes a price ceiling of $10.00 in order to protect buyers in this
market,
a. total surplus and efficiency in the market will increase.
b. total surplus will decrease but efficiency will increase.
c. total surplus will decrease and efficiency will decrease.
d. consumer surplus will increase but producer surplus will
decrease by the same amount.
16. An economically
efficient situation is one in which
a. everyone has everything they need.
b. everyone has above-average income.
c. total surplus is maximized.
d. all producers are operating at the lowest possible
marginal cost.
17. An equilibrium
when there is perfect competition
a. is undesirable.
b. is economically efficient.
c. leads to high consumer surplus at the expense of producer
surplus.
d. can be economically efficient only if the government
steps in with price floors to protect sellers.
18. One way of
measuring the economic inefficiency in a specific situation is to calculate the
a. difference between the price of the good in the
inefficient situation and the price if the situation was efficient.
b. change in revenue reported by firms.
c. loss in consumer and producer surplus relative to an
efficient solution.
d. change in economic profits relative to an efficient
solution.
19. A per-unit tax on
a good will
a. result in a decrease in total surplus.
b. generally hurt only consumer surplus.
c. generally hurt only producer surplus.
d. result in an increase in total surplus.
20. If the supply
curve is perfectly elastic, a per unit tax
a. doesn’t reduce total surplus.
b. doesn’t reduce consumer surplus.
c. doesn’t reduce producer surplus.
d. reduces consumer surplus but increases producer surplus
by the same amount.
21. Equity involves
a. whether or not the outcome of an economic system is as
large as possible.
b. whether or not the outcome of an economic system is
divided fairly among participants.
c. the way that government becomes involved in fighting for
an efficient allocation of resources.
22. Frequently, when
firms have market power
a. the product in an industry is no longer standardized.
b. there are only two sellers of a good or service.
c. price is lower than it would be with perfect competition.
d. external benefits are created by the firms with market
power that increase total surplus.
23. Which of the
following firms has the most power in its market?
a. the U.S. Post Office
b. Ford Motor Company
c. FedEx
d. Ben & Jerry’s Ice Cream
24. Which of the
following is an example of a positive externality?
a. air pollution
b. a person who litters in a public park
c. a consumer whose dream comes true when she buys a new
convertible
d. a nice garden in front of your neighbor’s house
25. Market failure in
the form of externalities arises when
a. all production costs are included in the prices of goods.
b. not all costs and benefits are included in the prices of
goods.
c. the total surplus is maximized but some consumers cannot
buy because prices are too high.
d. the market fails to achieve equilibrium.
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