Consumers, Producers, and the Efficiency of Markets
Multiple Choice – Section 00: Introduction
1. Which of the following statements is correct?
a. Buyers always want to pay less and sellers always want to be paid more.
b. Buyers always want to pay less and sellers always want to be paid less.
c. Buyers always want to pay more and sellers always want to be paid more.
d. Buyers always want to pay more and sellers always want to be paid less.
2. Welfare economics is the study of how
a. the allocation of resources affects economic well-being.
b. a price ceiling compares to a price floor.
c. the government helps poor people.
d. a consumer’s optimal choice affects her demand curve.
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3. Welfare economics is the study of
a. taxes and subsidies.
b. how technology is best put to use in the production of goods and services.
c. government welfare programs for needy people.
d. how the allocation of resources affects economic well-being.
4. Welfare economics is the study of
a. the well-being of less fortunate people.
b. welfare programs in the United States.
c. how the allocation of resources affects economic well-being.
d. the effect of income redistribution on work effort.
5. The study of how the allocation of resources affects economic well-being is called
a. consumer economics.
b. macroeconomics.
c. willingness–to–pay economics.
d. welfare economics.
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6. An example of positive analysis is studying
a. how market forces produce equilibrium.
b. whether equilibrium outcomes are fair.
c. whether equilibrium outcomes are socially desirable.
d. if income distributions are fair.
7. An example of normative analysis is studying
a. how market forces produce equilibrium.
b. surpluses and shortages.
c. whether equilibrium outcomes are socially desirable.
d. income distributions.
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8. Which of the Ten Principles of Economics does welfare economics explain more fully?
a. The cost of something is what you give up to get it.
b. Markets are usually a good way to organize economic activity.
c. Trade can make everyone better off.
d. A country’s standard of living depends on its ability to produce goods and services.
9. Which of the Ten Principles of Economics does welfare economics explain more fully?
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.
10. One of the basic principles of economics is that markets are usually a good way to organize
economic activity. This principle is explained by the study of
a. factor markets.
b. energy markets.
c. welfare economics.
d. labor economics.
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11. A result of welfare economics is that the equilibrium price of a product is considered to be the
best price because it
a. maximizes both the total revenue for firms and the quantity supplied of the product.
b. maximizes the combined welfare of buyers and sellers.
c. minimizes costs and maximizes output.
d. minimizes the level of welfare payments.
12. The particular price that results in quantity supplied being equal to quantity demanded is the best
price because it
a. maximizes costs of the seller.
b. maximizes tax revenue for the government.
c. maximizes the combined welfare of buyers and sellers.
d. minimizes the expenditure of buyers.
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13. Welfare economics explains which of the following in the market for televisions?
a. The government sets the price of televisions; firms respond to the price by producing a specific
level of output.
b. The government sets the quantity of televisions; firms respond to the quantity by charging a
specific price.
c. The market equilibrium price for televisions maximizes the total welfare of television buyers
and sellers.
d. The market equilibrium price for televisions maximizes consumer welfare and minimizes
producer profit.
Multiple Choice – Section 01: Consumer Surplus
1. The maximum price that a buyer will pay for a good is called
a. consumer surplus.
b. willingness to pay.
c. equilibrium.
d. efficiency.
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2. Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie
Chaplin’s first movie.
Each has in mind a maximum amount that he will bid. This maximum is called
a. a resistance price.
b. willingness to pay.
c. consumer surplus.
d. producer surplus.
3. Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has
in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This
maximum is called
a. deadweight loss.
b. willingness to pay.
c. consumer surplus.
d. producer surplus.
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4. Willingness to pay
a. measures the value that a buyer places on a good.
b. is the amount a seller actually receives for a good minus the minimum amount the seller is willing
to accept.
c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to
accept.
d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
5. A consumer’s willingness to pay directly measures
a. the extent to which advertising and other external forces have influenced the consumer’s
preferences.
b. the cost of a good to the buyer.
c. how much a buyer values a good.
d. consumer surplus.
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6. When a buyer’s willingness to pay for a good is equal to the price of the good, the
a. buyer’s consumer surplus for that good is maximized.
b. buyer will buy as much of the good as the buyer’s budget allows.
c. price of the good exceeds the value that the buyer places on the good.
d. buyer is indifferent between buying the good and not buying it.
7. In which of the following circumstances would a buyer be indifferent about buying a good?
a. The amount of consumer surplus the buyer would experience as a result of buying the good is
zero.
b. The price of the good is equal to the buyer’s willingness to pay for the good.
c. The price of the good is equal to the value the buyer places on the good.
d. All of the above are correct.
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8. A demand curve reflects each of the following except the
a. willingness to pay of all buyers in the market.
b. value each buyer in the market places on the good.
c. highest price buyers are willing to pay for each quantity.
d. ability of buyers to obtain the quantity they desire.
9. Consumer surplus
a. is closely related to the supply curve for a product.
b. is represented by a rectangle on a supply-demand graph when the demand curve is a straight,
downward- sloping line.
c. is measured using the demand curve for a product.
d. does not reflect economic well-being in most markets.
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10. Consumer surplus is
a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
b. the amount a buyer is willing to pay for a good minus the cost of producing the good.
c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the
good.
d. a buyer‘s willingness to pay for a good plus the price of the good.
11. Consumer surplus
a. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it.
b. is represented on a supply-demand graph by the area below the price and above the demand
curve.
c. measures the benefit sellers receive from participating in a market.
d. measures the benefit buyers receive from participating in a market.
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12. Consumer surplus
a. is the amount of a good that a consumer can buy at a price below equilibrium price.
b. is the amount a consumer is willing to pay minus the amount the consumer actually pays.
c. is the number of consumers who are excluded from a market because of scarcity.
d. measures how much a seller values a good.
13. Consumer surplus is the
a. amount of a good consumers get without paying anything.
b. amount a consumer pays minus the amount the consumer is willing to pay.
c. amount a consumer is willing to pay minus the amount the consumer actually pays.
d. value of a good to a consumer.
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14. Consumer surplus is equal to the
a. Value to buyers – Amount paid by buyers.
b. Amount paid by buyers – Costs of sellers.
c. Value to buyers – Costs of sellers.
d. Value to buyers – Willingness to pay of buyers.
15. On a graph, the area below a demand curve and above the price measures
a. producer surplus.
b. consumer surplus.
c. deadweight loss.
d. willingness to pay.
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16. On a graph, consumer surplus is represented by the area
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.
17. Consumer surplus in a market can be represented by the
a. area below the demand curve and above the price.
b. distance from the demand curve to the horizontal axis.
c. distance from the demand curve to the vertical axis.
d. area below the demand curve and above the horizontal axis.
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18. Consumer surplus is
a. a concept that helps us make normative statements about the desirability of market outcomes.
b. represented on a graph by the area below the demand curve and above the price.
c. a good measure of economic welfare if buyers’ preferences are the primary concern.
d. All of the above are correct.
19. In a market, the marginal buyer is the buyer
a. whose willingness to pay is higher than that of all other buyers and potential buyers.
b. whose willingness to pay is lower than that of all other buyers and potential buyers.
c. who is willing to buy exactly one unit of the good.
d. who would be the first to leave the market if the price were any higher.
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Table 7-1
Buyer
Willingness To Pay
Calvin
$150.00
Sam
$135.00
Andrew
$120.00
Lori
$100.00
20. Refer to Table 7-1. If the price of the product is $110, then who would be willing to purchase
the product?
a. Calvin
b. Calvin and Sam
c. Calvin, Sam, and Andrew
d. Calvin, Sam, Andrew, and Lori
21. Refer to Table 7-1. If the price of the product is $130, then who would be willing to purchase
the product?
a. Calvin
b. Calvin and Sam
c. Calvin, Sam, and Andrew
d. Calvin, Sam, Andrew, and Lori
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22. Refer to Table 7-1. If the price of the product is $90, then who would be willing to purchase the
product?
a. Calvin
b. Calvin and Sam
c. Calvin, Sam, and Andrew
d. Calvin, Sam, Andrew, and Lori
23. Refer to Table 7-1. If the price of the product is $122, then the total consumer surplus is
a.
$28.
b.
$41.
c.
$43.
d.
$405.
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24. Refer to Table 7-1. If price of the product is $135, then the total consumer surplus is
a. $-50.
b. $-35.
c. $15.
d. $150.
25. Refer to Table 7-1. If the market price is $105,
a. Calvin’s consumer surplus is $45 and total consumer surplus is $85.
b. Sam’s consumer surplus is $30 and total consumer surplus is $90.
c. Andrew’s consumer surplus is $15 and total consumer surplus is $67.50.
d. Lori’s consumer surplus is -$2 and total consumer surplus is $100.
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Table 7-2
This table refers to five possible buyers’ willingness to pay for a case of Vanilla Coke.
Buyer
Willingness To Pay
David
$8.50
Laura
$7.00
Megan
$5.50
Mallory
$4.00
Audrey
$3.50
26. Refer to Table 7-2. If the price of Vanilla Coke is $6.90, who will purchase the good?
a. all five individuals
b. Megan, Mallory and Audrey
c. David, Laura and Megan
d. David and Laura
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27. Refer to Table 7-2. Which of the following is not true?
a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke.
b. At a price of $5.50, Megan is indifferent between buying a case of Vanilla Coke and not
buying one.
c. At a price of $4.00, total consumer surplus in the market will be $9.00.
d. All of the above are correct.
28. Refer to Table 7-2. If the market price is $5.50, the consumer surplus in the market will be a.
$3.00.
b. $4.50.
c. $15.50.
d. $21.00.