Question 1

Welfare economics is the study of the welfare system.

Accepted Answer

A) True 
 B)False

Question 2

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 3

Table 7-17
 
-Refer to Table 7-17. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is

Accepted Answer

A)   $18 lower than it would be if the equilibrium number of units were bought and sold.
B)   $22 lower than it would be if the equilibrium number of units were bought and sold.
C)   $26 lower than it would be if the equilibrium number of units were bought and sold.
D)   $6 higher than it would be if the equilibrium number of units were bought and sold.E) B) and D)
F) A) and C)

Question 4

Figure 7-24 
-Refer to Figure 7-24. If the government imposes a price floor at $18, then consumer surplus is

Accepted Answer

A)   ABF.
B)   AGH.
C)   HGCD.
D)   HGBF.E) C) and D)
F) All of the above

Question 5

Which of the Ten Principles of Economics does welfare economics explain more fully?

Accepted Answer

A)   The cost of something is what you give up to get it.
B)   Rational people think at the margin.
C)   Markets are usually a good way to organize economic activity.
D)   People respond to incentives.E) None of the above
F) B) and C)

Question 6

Figure 7-30 
-Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much is the change in total consumer surplus in the market?

Accepted Answer

Consumer s...

Question 7

Which of the following will cause no change in producer surplus?

Accepted Answer

A)   the imposition of a nonbinding price ceiling in the market
B)   buyers expect the price of a good to be higher next month
C)   the price of a substitute increases
D)   income increases and buyers consider the good to be inferiorE) B) and D)
F) A) and B)

Question 8

Figure 7-17 
-Refer to Figure 7-17. If the demand curve is D and the supply curve shifts left from S to S', what is the change in producer surplus when comparing the new equilibrium with the original equilibrium?

Accepted Answer

A)   Producer surplus increases by $225.
B)   Producer surplus increases by $675.
C)   Producer surplus decreases by $225.
D)   Producer surplus decreases by $675.E) C) and D)
F) A) and D)

Question 9

Figure 7-18 
-Refer to Figure 7-18. If total surplus is $240 and consumer surplus is

Accepted Answer

A)   $100, then the price of the good is $130.
B)   $130, then the price of the good is $120.
C)   $160, then the price of the good is $100.
D)   $120, then the price of the good is $90.E) A) and D)
F) A) and B)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Figure 7-28 
-Refer to Figure 7-28. At the quantity Q3,

Accepted Answer

A)   the market is in equilibrium.
B)   consumer surplus is maximized.
C)   the sum of consumer surplus and producer surplus is maximized.
D)   the marginal value to buyers is less than the marginal cost to sellers.E) A) and B)
F) A) and C)

Question 12

We can say that the allocation of resources is efficient if

Accepted Answer

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) C) and D)

Question 13

Figure 7-30 
-Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much consumer surplus do consumers entering the market after the price drop receive?

Accepted Answer

Consumers entering t...

Question 14

Which of the following is not correct?

Accepted Answer

A)   Market power can cause markets to be inefficient.
B)   When the decisions of buyers and sellers affect nonparticipants, markets may be inefficient.
C)   The tools of welfare economics cannot help economists when markets are inefficient.
D)   Externalities can cause markets to be inefficient.E) All of the above
F) None of the above

Question 15

Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

Accepted Answer

A) True 
 B)False

Question 16

On a graph, consumer surplus is represented by the area

Accepted Answer

A)   between the demand and supply curves.
B)   below the demand curve and above price.
C)   below the price and above the supply curve.
D)   below the demand curve and to the right of equilibrium price.E) None of the above
F) C) and D)

Question 17

Figure 7-21 
-Refer to Figure 7-21. When the price is P1, area C represents

Accepted Answer

A)   total benefit.
B)   producer surplus.
C)   consumer surplus.
D)   None of the above is correct.E) B) and C)
F) C) and D)

Question 18

Steak and chicken are substitutes. A sharp reduction in the supply of steak would

Accepted Answer

A)   increase consumer surplus in the market for steak and decrease producer surplus in the market for chicken.
B)   increase consumer surplus in the market for steak and increase producer surplus in the market for chicken.
C)   decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken.
D)   decrease consumer surplus in the market for steak and decrease producer surplus in the market for chicken.E) A) and B)
F) All of the above

Question 19

Figure 7-3 
-Refer to Figure 7-3. When the price rises from P1 to P2, which of the following statements is not true?

Accepted Answer

A)   The buyers who still buy the good are worse off because they now pay more.
B)   Some buyers leave the market because they are not willing to buy the good at the higher price.
C)   Buyers place a higher value on the good after the price increase.
D)   Consumer surplus in the market falls.E) A) and B)
F) A) and C)

Question 20

The maximum price that a buyer will pay for a good is called

Accepted Answer

A)   consumer surplus.
B)   willingness to pay.
C)   equilibrium.
D)   efficiency.E) B) and D)
F) B) and C)

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

Figure 7-28 -Refer to Figure 7-28. At the quantity Q3,

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

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Which of the following is not correct?

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Which of the following will cause no change in producer surplus?

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Figure 7-24 -Refer to Figure 7-24. If the government imposes a price floor at $18, then consumer surplus is

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Figure 7-30 -Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much consumer surplus do consumers entering the market after the price drop receive?

Correct AnswerverifiedConsumers entering t...View AnswerShow Answer

The maximum price that a buyer will pay for a good is called

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Figure 7-3 -Refer to Figure 7-3. When the price rises from P1 to P2, which of the following statements is not true?

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Which of the Ten Principles of Economics does welfare economics explain more fully?

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Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

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Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

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Welfare economics is the study of the welfare system.

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Figure 7-30 -Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much is the change in total consumer surplus in the market?

Correct AnswerverifiedConsumer s...View AnswerShow Answer

We can say that the allocation of resources is efficient if

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Figure 7-18 -Refer to Figure 7-18. If total surplus is $240 and consumer surplus is

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Figure 7-21 -Refer to Figure 7-21. When the price is P1, area C represents

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Figure 7-17 -Refer to Figure 7-17. If the demand curve is D and the supply curve shifts left from S to S', what is the change in producer surplus when comparing the new equilibrium with the original equilibrium?

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Table 7-17 -Refer to Table 7-17. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is

Correct AnswerverifiedShow Answer

Steak and chicken are substitutes. A sharp reduction in the supply of steak would

Correct AnswerverifiedShow Answer

On a graph, consumer surplus is represented by the area

Correct AnswerverifiedShow Answer

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Consumers entering t...
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Consumer s...
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