9) The figure shows the demand curve for hotel rooms at a local resort.
a. If the hotel charges $120 per night, how many rooms will they rent?
b. If there are only 40 rooms available, how much are customers willing to pay for a room?
c. If 60 rooms are available, how much are customers willing to pay?
d. What do the dollars in your answer to part (c) represent?
10) Jenn is willing to pay $75 for a purse and the purse’s price is $60. What is Jenn’s consumer
surplus on this purse?
11) Jason needs help getting ready for the next test in his economics course and would like to
hire Maria, an economics tutor to help him. Jason is willing to pay $30 for the first hour of
tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. The
equilibrium price for tutoring is $15 per hour. For how many hours of tutoring will Jason hire
Maria? Why this amount of hours? What is Jason’s consumer surplus, if any, from the tutoring?
What is Maria’s consumer surplus from the tutoring?
12) The figure above shows the demand curve for pizza.
a. What is the marginal benefit of the 20th pizza?
b. What is the maximum price the consumer is willing to pay for the 20th pizza?
c. If the price of a pizza is $6, what is the consumer surplus of the 20th pizza?
d. If the price of a pizza is $10, what is the consumer surplus on all the pizzas consumed?
e. If the price of a pizza is $6, what is the consumer surplus on all the pizzas consumed?
13) The figure above shows Cindy’s demand for CDs per year.
a. What is Cindy’s consumer surplus on all the CDs consumed if the price of a CD is $12?
b. What is Cindy’s consumer surplus on all the CDs consumed if the price of a CD is $9?
c. What happens to Cindy’s consumer surplus when the price of a CD falls?
14) The diagram above depicts the demand for, and market price of, buckets of raw oysters in
Orlando.
a. What is the consumer surplus of the person who buys the 100th bucket of oysters?
b. What is the consumer surplus of the person who buys the 200th bucket of oysters?
c. What is the consumer surplus of the person who buys the 300th bucket of oysters?
d. What is the total consumer surplus from all the oysters consumed in the market?
6.10 Essay: Cost, Price, and Producer Surplus
1) Explain the difference between the words “value,” “price,” and “cost.”
2) The supply curve is the same as another curve. What other curve is the same as the supply
curve? Why are the curves the same?
3) What is producer surplus?
4) What must be true for a producer to obtain a producer surplus from the sale of a unit of a
good?
5) If the price of a visit to Sea World exceeds the marginal cost of the visit by $13, a producer
surplus exists for Sea World.” Is this statement true or false?
6) Maria helps tutor students taking economics. The equilibrium price for tutoring is $15 per
hour. Maria has determined her opportunity cost per hour to be $6 for the first, $9 for the second,
$12 for the third, $15 for the fourth, and $18 for the fifth. How many hours will Maria tutor?
Why this amount of hours? What, if any, is Maria’s producer surplus?
7) The figure above shows the supply curve for pizzas.
a. What is the marginal cost of the 20th pizza?
b. What is the minimum supply price of the 20th pizza?
c. If the price is $6 per pizza, what is the producer surplus on the 20th pizza?
d. If the price is $6 per pizza, what is the producer surplus for the total quantity of pizzas
produced?
e. If the price is $8 per pizza, what is the producer surplus for the total quantity of pizzas
produced?
f. If the price is $10 per pizza, what is the producer surplus for the total quantity of pizzas
produced?
6.11 Essay: Are Markets Efficient?
1) Why is a competitive market efficient?
2) Briefly describe the concept of the “invisible hand.”
3) Explain how the invisible hand delivers an efficient market outcome.
4) What is the “invisible hand”?
5) When economists refer to “the invisible hand,” what do they mean?
6) “If there is an inefficient level of nursing care in South America, a deadweight loss exists.” Is
this statement true or false?
7) What are some of the potential obstacles that can prevent a market from reaching the efficient
outcome? Briefly define each obstacle.
8) Jason hires Maria to tutor him in economics. Jason is willing to pay $30 for the first hour of
tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth. Maria has
an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third, $15 for the
fourth, and $18 for the fifth. What will be the equilibrium quantity of hours tutored and the
equilibrium price? Explain why this quantity and price is the equilibrium. What is Jason’s
consumer surplus and what is Maria’s producer surplus?
9) The figure above shows the market for pizza.
a. If the price of a slice of pizza is $3, what is the consumer surplus of the 50th slice?
b. If the price of a slice of pizza is $3, what is the producer surplus of the 50th slice
c. What is the efficient quantity? What is the equilibrium quantity? What is the deadweight loss
when the equilibrium quantity is produced?
10) Jason wants to hire Maria to tutor him in economics. Jason is willing to pay $30 for the first
hour of tutoring, $25 for the second, $20 for the third, $15 for the fourth, and $10 for the fifth.
Maria has an opportunity cost per hour of $6 for the first, $9 for the second, $12 for the third,
$15 for the fourth, and $18 for the fifth. The initial equilibrium price for tutoring is $15 an hour
and hence Maria tutors Jason for 4 hours. Now, Maria realizes that she is the only economics
tutor because all the other tutors have graduated. Because she is the only tutor, she has a
monopoly and, as a monopolist, Maria decides to charge a price of $25 instead of $15 an hour.
a. At the price of $25 an hour, how many hours will Maria tutor Jason?
b. At the initial equilibrium price of $15 an hour, what was Jason’s total consumer surplus and
Maria’s total producer surplus?
c. At the price of $25 an hour, how many hours will Jason hire Maria to tutor him? What is
Jason’s total consumer surplus and Maria’s total producer surplus?
d. How does the sum of Jason’s consumer surplus plus Maria’s producer surplus compare at the
initial equilibrium price of $15 an hour (part b) and at the new price of $25 an hour (part c)?
Comment on any difference.
11) The figure above shows the market for hot dogs.
a. What is the maximum price consumers are willing to pay for the 25th hot dog?
b. What is the efficient quantity?
c. Suppose that the production was limited to 25 hot dogs. In the figure, indicate the amount of
the deadweight loss.
12) The figure above shows the supply and demand curves for pizza. If the market is at its
competitive equilibrium, what area in the graph above represents:
a. consumer surplus?
b. producer surplus?
13) The figure above shows the supply and demand for pizza.
a. What is the efficient level of output?
b. If 70,000 pizzas are produced, what area represents the deadweight loss?
c. Why does the deadweight loss in part (b) occur?
d. If 20,000 pizzas are produced, what area represents the deadweight loss?
e. Why does the deadweight loss in part (d) occur?
6.12 Essay: Are Markets Fair?
1) What are the two views of fairness? How does each view redistribution of income from the
rich to the poor?
2) How can a person argue that health care services in America are provided efficiently, but not
fairly?
3) Often politicians assert that a price, such as the price of gasoline or the rent for an apartment,
is too high and that it is unfair for these prices to be so high. If these products are traded in
competitive markets, what fairness rule are politicians using? Why?
4) What approach to fairness argues in favor of government policies that redistribute income so
that there is more equality of income?
5) What is the “big tradeoff”?
6) Why do societies face a tradeoff between the size of the economic pie and the degree of
equality with which it is shared?
7) Why does the problem of the big tradeoff arise when the government engages in the process
of redistributing income using taxes and transfers?
8) Bill Gates is a founder of Microsoft and the world’s richest individual. Suppose Microsoft
sells more software and Mr. Gates acquires another billion dollars in wealth. Simultaneously,
suppose a burglar whose income is well below average broke into Bill Gates’ house and stole a
million dollars worth of antiques. Using the “it’s not fair if the rules aren’t fair” approach to
fairness, is Mr. Gates’ acquisition of additional wealth fair? Is the (poor) thief’s acquisition fair?
9) According to the “fair rules” view of fairness, are taxes fair? Explain.