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True / False
1. Welfare economics is the study of the welfare system.
a.
True
b.
False
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.
a.
True
b.
False
3. For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.
a.
True
b.
False
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.
a.
True
b.
False
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.
a.
True
b.
False
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.
a.
True
b.
False
7. Consumer surplus measures the benefit to buyers of participating in a market.
a.
True
b.
False
8. Consumer surplus can be measured as the area between the demand curve and the equilibrium price.
a.
True
b.
False
9. Consumer surplus can be measured as the area between the demand curve and the supply curve.
a.
True
b.
False
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.
a.
True
b.
False
11. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $10.
a.
True
b.
False
12. If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is $90.
a.
True
b.
False
13. All else equal, an increase in supply will cause an increase in consumer surplus.
a.
True
b.
False
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.
a.
True
b.
False
15. If the government imposes a binding price floor in a market, then the consumer surplus in that market will increase.
a.
True
b.
False
16. If the government imposes a binding price floor in a market, then the consumer surplus in that market will decrease.
a.
True
b.
False
17. All else equal, an increase in demand will always increase consumer surplus.
a.
True
b.
False
18. If Rosa is willing to pay $450 for hockey tickets and has consumer surplus of $175, the price of the tickets is $625.
a.
True
b.
False
19. Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.
a.
True
b.
False
20. The lower the price, the lower the consumer surplus, all else equal.
a.
True
b.
False
21. In order to calculate consumer surplus in a market, we need to know willingness to pay and price.
a.
True
b.
False
22. An increase in price increases consumer surplus.
a.
True
b.
False
23. 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.
a.
True
b.
False
24. At any quantity, the price given by the supply curve shows the cost of the lowest-cost seller.
a.
True
b.
False
25. In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.
a.
True
b.
False
26. Producer surplus is the amount a seller is paid minus the cost of production.
a.
True
b.
False
27. Producer surplus is the cost of production minus the amount a seller is paid.
a.
True
b.
False
28. All else equal, an increase in demand will cause an increase in producer surplus.
a.
True
b.
False
29. All else equal, a decrease in demand will cause an increase in producer surplus.
a.
True
b.
False
30. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $45.
a.
True
b.
False
31. If producing a soccer ball costs Jake $5, and he sells it for $40, his producer surplus is $35.
a.
True
b.
False
32. 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.
a.
True
b.
False
33. 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.
a.
True
b.
False
34. The area below the price and above the supply curve measures the producer surplus in a market.
a.
True
b.
False
35. The area below the demand curve and above the supply curve measures the producer surplus in a market.
a.
True
b.
False
36. If the government imposes a binding price ceiling in a market, then the producer surplus in that market will increase.
a.
True
b.
False
37. 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.
a.
True
b.
False
38. The lower the price, the lower the producer surplus, all else equal.
a.
True
b.
False
39. Producer surplus measures the benefit to sellers from receiving a price above their costs.
a.
True
b.
False
40. If the government removes a binding price ceiling in a market, then the producer surplus in that market will increase.
a.
True
b.
False
41. Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is
. If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.
a.
True
b.
False
42. Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is
. If 90 units of the good are produced and sold, then producer surplus amounts to $1,350.
a.
True
b.
False
43. The cost of production plus producer surplus is the price a seller is paid.
a.
True
b.
False
44. Total surplus in a market is consumer surplus minus producer surplus.
a.
True
b.
False
45. Total surplus = Value to buyers - Costs to sellers.
a.
True
b.
False
46. 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.
a.
True
b.
False
47. 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.
a.
True
b.
False
48. The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating
in that market.
a.
True
b.
False
49. 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.
a.
True
b.
False
50. Efficiency is related to the size of the economic pie, whereas equality is related to how the pie gets sliced and
distributed.
a.
True
b.
False
51. 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.
a.
True
b.
False
52. Economists generally believe that, although there may be advantages to society from ticket-scalping, the costs to
society of this activity outweigh the benefits.
a.
True
b.
False
53. Economists argue that restrictions against ticket scalping actually drive up the cost of many tickets.
a.
True
b.
False
54. Ticket scalping can increase total surplus in the market for tickets to sporting events.
a.
True
b.
False
55. 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.
a.
True
b.
False
56. 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.
a.
True
b.
False
57. The current policy on kidney donation effectively sets a price ceiling of zero.
a.
True
b.
False
58. Wendy is willing to pay $50 for a concert ticket and Bruce would like to receive $25. If the market price is $40 for this
transaction, then the total surplus would be $15.
a.
True
b.
False
59. Suppose you sell a kayak for $600, but you were willing to sell it for $450. The buyer was willing to pay $650. The
total surplus is $200.
a.
True
b.
False
60. If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or
decreasing the quantity of the good.
a.
True
b.
False
61. Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.
a.
True
b.
False
62. In order to conclude that markets are efficient, we assume that they are perfectly competitive.
a.
True
b.
False
63. Markets will always allocate resources efficiently.
a.
True
b.
False
64. When markets fail, public policy can potentially remedy the problem and increase economic efficiency.
a.
True
b.
False
65. Market power and externalities are examples of market failures.
a.
True
b.
False
