Chapter 7 The government sets the quantity of televisions

subject Type Homework Help
subject Pages 13
subject Words 3483
subject Authors N. Gregory Mankiw

Unlock document.

This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
page-pf1
Consumers, Producers, and the Efficiency of Markets 1953
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
page-pf2
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
page-pf3
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
page-pf4
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
page-pf5
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
page-pf6
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
page-pf7
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
page-pf8
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
page-pf9
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
page-pfa
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
page-pfb
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
page-pfc
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
page-pfd
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
page-pfe
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?
page-pff
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.
page-pf10
page-pf11
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.
page-pf12
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).
page-pf13
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.

Trusted by Thousands of
Students

Here are what students say about us.

Copyright ©2022 All rights reserved. | CoursePaper is not sponsored or endorsed by any college or university.