Consumers, Producers, and the Efficiency of Markets 1953
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
1954 Consumers, Producers, and the Efficiency of Markets
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
Consumers, Producers, and the Efficiency of Markets 1955
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
1956 Consumers, Producers, and the Efficiency of Markets
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
Consumers, Producers, and the Efficiency of Markets 1957
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
1958 Consumers, Producers, and the Efficiency of Markets
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
Consumers, Producers, and the Efficiency of Markets 1959
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
1960 Consumers, Producers, and the Efficiency of Markets
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
Consumers, Producers, and the Efficiency of Markets 1961
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
1962 Consumers, Producers, and the Efficiency of Markets
66. Answer each of the following questions about demand and consumer surplus.
a. What is consumer surplus, and how is it measured?
b. What is the relationship between the demand curve and the willingness to pay?
c. Other things equal, what happens to consumer surplus if the price of a good falls? Why?
Illustrate using a demand curve.
d. In what way does the demand curve represent the benefit consumers receive from
participating in a market? In addition to the demand curve, what else must be considered to
determine consumer surplus?
Consumers, Producers, and the Efficiency of Markets 1963
67. Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats:
Value of first donut
$0.60
Value of second donut
$0.50
Value of third donut
$0.40
Value of fourth donut
$0.30
Value of fifth donut
$0.20
Value of sixth donut
$0.10
a. Use this information to construct Tammy’s demand curve for donuts.
b. If the price of donuts is $0.20, how many donuts will Tammy buy?
c. Show Tammy’s consumer surplus on your graph. How much consumer surplus would she
have at a price of $0.20?
d. If the price of donuts rose to $0.40, how many donuts would she purchase now? What would
happen to Tammy’s consumer surplus? Show this change on your graph.
1964 Consumers, Producers, and the Efficiency of Markets
Consumers, Producers, and the Efficiency of Markets 1965
68. Answer each of the following questions about supply and producer surplus.
a. What is producer surplus, and how is it measured?
b. What is the relationship between the cost to sellers and the supply curve?
c. Other things equal, what happens to producer surplus when the price of a good rises?
Illustrate your answer on a supply curve.
1966 Consumers, Producers, and the Efficiency of Markets
69. Given the following two equations:
1) Total Surplus = Consumer Surplus + Producer Surplus
2) Total Surplus = Value to Buyers – Cost to Sellers
Show how equation (1) can be used to derive equation (2).
70. Answer the following questions based on the graph that represents J.R.‘s demand for ribs per
week at Judy’s Rib Shack.
a. At the equilibrium price, how many ribs would J.R. be willing to purchase?
b. How much is J.R. willing to pay for 20 ribs?
c. What is the magnitude of J.R.’s consumer surplus at the equilibrium price?
d. At the equilibrium price, how many ribs would Judy be willing to sell?
e. How high must the price of ribs be for Judy to supply 20 ribs to the market?
f. At the equilibrium price, what is the magnitude of total surplus in the market?
g. If the price of ribs rose to $10, what would happen to J.R.’s consumer surplus?
h. If the price of ribs fell to $5, what would happen to Judy’s producer surplus?
i. Explain why the graph that is shown verifies the fact that the market equilibrium (quantity)
maximizes the sum of producer and consumer surplus.
Consumers, Producers, and the Efficiency of Markets 1967
1968 Consumers, Producers, and the Efficiency of Markets
Problems
1. What do economists call the highest amount a consumer will pay to purchase a good?
2. If John’s willingness to pay for a good is $20 and the price of the good is $15, how much is John’s
consumer surplus
from purchasing the good?
Table 7-18
The following table shows the willingness to pay for a good for the only four consumers in a
market.
Consumer
Willingness to Pay
A
$25
B
$40
C
$15
D
$30
3. Refer to Table 7-18. If the price of the good is $20, how many units will be demanded?
Consumers, Producers, and the Efficiency of Markets 1969
4. Refer to Table 7-18. If the price of the good is $20, how much is the total consumer surplus?
Scenario 7-1
Suppose market demand is given by the equation
5. Refer to Scenario 7-1. If the market equilibrium price is $10, how much is total consumer surplus
in this market?
6. Refer to Scenario 7-1. If the market equilibrium price rises from $10 to $15, what is the change
in total consumer surplus in the market?