Macroeconomics 2017 (Hubbard)
Chapter 4 Economic Efficiency, Government Price Setting, and Taxes
4.1 Consumer Surplus and Producer Surplus
1) The difference between the ________ for a good and the ________ is called consumer surplus.
A) highest price a consumer is willing to pay; lowest price a consumer is willing to pay
B) lowest price a consumer is willing to pay; price the consumer actually pays
C) highest price a consumer is willing to pay; price the consumer actually pays
D) price the consumer actually pays; actual cost to the producer
2) In cities with rent control, people have an incentive to list their apartments on sites such as Airbnb at
rents ________ the controlled rates, because rent control causes a ________ of apartments.
A) above; surplus
B) above; shortage
C) below; surplus
D) below; shortage
3) Suppose there are two cities that have rent controlled apartments. In one city (Albany) all apartments
are subject to rent control; in the other city (Halftrack) one-half of the apartments are rent controlled.
Which of the following is most likely to be true?
A) It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack
apartments not subject to controls will be higher than they would be without rent control.
B) It will be easier to find an affordable apartment in Albany since rents will be low across the board.
C) It will be easier to find an affordable apartment in Halftrack, either a rent-controlled apartment or
another apartment, at a reasonable price.
D) It will be impossible to rent an apartment in either city at any price.
4) Juanita goes to the Hardware Emporium to buy a new circular saw. She is willing to pay $120 for a
new saw, but buys one on sale for $85. Juanita’s consumer surplus from the purchase is
A) $35.
B) $85.
C) $120.
D) $205.
5) Marco goes to the pet store to buy a dozen Koi fish for his new Koi pond. He is willing to pay $200
for the dozen fish, but buys them for a total of $140. Marco‘s consumer surplus from the purchase is
A) $5.
B) $60.
C) $140.
D) $200.
6) Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How
much does Brett value his cell phone?
A) $180
B) $100
C) $80
D) $20
7) Monique buys a new television for $795. She receives consumer surplus of $355 from the purchase.
How much does Monique value her television?
A) $355
B) $440
C) $795
D) $1150
8) The maximum price that a buyer is willing to pay for a good measures his
A) consumer surplus.
B) marginal benefit.
C) willingness to pay.
D) producer surplus.
9) A consumer is willing to purchase a product up to the point where
A) he spends all of his income.
B) the marginal benefit is equal to the price of the product.
C) the quantity demanded is equal to the quantity supplied.
D) he is indifferent between consuming and saving.
10) The additional benefit to a consumer from consuming one more unit of a good or service
A) is equal to consumer surplus.
B) is equal to the opportunity cost of consuming the good or service.
C) is equal to marginal benefit.
D) is equal to economic surplus.
11) Which of the following statements best describes the concept of consumer surplus?
A) “I paid $89 for a microwave oven last week. This week the same store is selling the same microwave
oven for $69.”
B) “I sold my hard copy of Harry Potter and the Half-Blood Prince to a used book store for $10 even though
I was willing to sell it for $5.”
C) “Target was having a sale on tube socks so I bought 5 pairs.”
D) “I was going to pay $200 for new sunglasses that I had seen at the Oakley store but I ended up
paying only $140 for the same sunglasses.”
12) Each point on a demand curve shows
A) the willingness of consumers to purchase a product at different prices.
B) the consumer surplus received from purchasing a given quantity of a product.
C) the economic surplus received from purchasing a given quantity of a product.
D) the legally determined maximum price that sellers may charge for a given quantity of a product.
Table 4-1
Consumer
Willingness to Pay
Curly
$50
Moe
30
Larry
15
13) Refer to Table 4-1. The table above lists the highest prices three consumers, Curly, Moe, and Larry,
are willing to pay for a bottle of champagne. If the price of one of the bottles is $24 dollars,
A) Curly will buy two bottles, Moe will buy one bottle and Larry will buy no bottles.
B) Curly will receive $26 of consumer surplus from buying one bottle.
C) Curly and Moe receive a total of $80 of consumer surplus from buying one bottle each. Larry will
buy no bottles.
D) Larry will receive $15 of consumer surplus since he will buy no bottles.
14) Refer to Table 4-1. The table above lists the highest prices three consumers, Curly, Moe, and Larry,
are willing to pay for a bottle of champagne. If the price of one of the bottles is $27 dollars, total
consumer surplus will be
A) $0.
B) $14.
C) $26.
D) $53.
15) Refer to Table 4-1. The table above lists the highest prices three consumers, Curly, Moe, and Larry,
are willing to pay for a bottle of champagne. If the price of one of the bottles is $95 dollars, total
consumer surplus will be
A) $0.
B) $35.
C) $80.
D) $95.
16) Refer to Table 4-1. The table above lists the highest prices three consumers, Curly, Moe, and Larry,
are willing to pay for a bottle of champagne. If the price of the champagne falls from $24 to $14
A) consumer surplus increases from $32 to $53.
B) Curly will buy four bottles; Moe will buy two bottles, and Larry will buy one bottle.
C) consumer surplus will increase from $80 to $95.
D) Larry and Moe will receive more consumer surplus than Curly.
Table 4-2
Consumer
Willingness to Pay
Violet
$48
Walter
40
Xavier
30
Yolanda
24
Zachary
14
17) Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a
concert ticket. If the price of one of the tickets is $36
A) Violet and Walter will each buy two tickets.
B) Walter will receive $4 of consumer surplus from buying one ticket.
C) Violet and Walter receive a total of $52 of consumer surplus from buying one ticket each. No one else
will buy a ticket.
D) Xavier, Yolanda, and Zachary will receive a total of $68 of consumer surplus since they will buy no
tickets.
18) Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a
concert ticket. If the price of one of the tickets is $20
A) everyone will buy a ticket except for Zachary.
B) only Violet and Walter will buy tickets.
C) Xavier’s consumer surplus is $50.
D) the total consumer surplus from the purchase of tickets will be $122.
19) Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a
concert ticket. If the price of one ticket is $50
A) everyone will buy a ticket.
B) consumer surplus will be maximized.
C) Violet’s consumer surplus is $2.
D) no one will buy a ticket.
20) Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a
concert ticket. If the price of one ticket rises from $20 to $38
A) only three tickets will be sold.
B) consumer surplus decreases from $62 to $12.
C) consumer surplus increases from $88 to $142.
D) no one will buy a ticket.
21) Refer to Table 4-2. The table above lists the highest prices five consumers are willing to pay for a
concert ticket. If the price of one ticket falls from $50 to $20
A) only three tickets will be sold.
B) consumer surplus decreases from $48 to $24.
C) consumer surplus increases from $0 to $62.
D) everyone will buy a ticket.
22) The additional cost to a firm of producing one more unit of a good or service is the
A) minimum cost.
B) total cost.
C) opportunity cost.
D) marginal cost.
Table 4-3
Marko’s
Polos
Marginal
Cost
(dollars)
1st shirt
$7
2nd shirt
10
3rd shirt
15
4th shirt
20
23) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko’s, a firm that
specializes in producing men’s clothing. If the market price of Marko’s polo shirts is $18
A) Marko’s will produce four shirts.
B) producer surplus from the first shirt is $18.
C) producer surplus will equal $22.
D) there will be a surplus; as a result, the price will fall to $7.
24) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko‘s, a firm that
specializes in producing men’s clothing. If the price of polo shirts increases from $15 to $20
A) consumers will buy no polo shirts.
B) the marginal cost of producing the third polo shirt will increase to $20.
C) producer surplus will rise from $13 to $28.
D) there will be a surplus of polo shirts.
25) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko’s, a firm that
specializes in producing men’s clothing. If the market price of Marko’s polo shirts is $13, Marko’s will
produce
A) 1 shirt.
B) 2 shirts.
C) 3 shirts.
D) 4 shirts.
26) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko’s, a firm that
specializes in producing men’s clothing. If the market price of Marko’s polo shirts is $30, Marko’s will
produce
A) 0 shirts.
B) 1 shirt.
C) 3 shirts.
D) 4 shirts.
27) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko’s, a firm that
specializes in producing men’s clothing. If the market price of Marko’s polo shirts is $30, producer
surplus is
A) $0.
B) $16.
C) $52.
D) $68.
28) Refer to Table 4-3. The table above lists the marginal cost of polo shirts by Marko‘s, a firm that
specializes in producing men’s clothing. If the price of polo shirts decreases from $15 to $10
A) consumers will buy no polo shirts.
B) the marginal cost of producing the third polo shirt will increase to $25.
C) producer surplus will fall from $13 to $3.
D) there will be a shortage of polo shirts.
29) The area above the market supply curve and below the market price
A) is equal to the total amount of producer surplus in a market.
B) is equal to the marginal cost of the last unit produced.
C) is equal to the total amount of economic surplus in a market.
D) is equal to the total cost of production.
30) Consumer surplus in a market for a product would be equal to the area under the demand curve if
A) producer surplus was equal to zero.
B) marginal cost was equal to the market price.
C) the product was produced in a perfectly competitive market.
D) the market price was zero.
31) Which of the following statements is not true?
A) Consumer surplus measures the difference between the highest price a consumer is willing to pay
for a product and the price she actually pays.
B) Marginal benefit is the additional benefit to a consumer from consuming one more unit of a product.
C) Consumer surplus measures the net benefit from participating in a market.
D) Producer surplus measures the total benefit received by producers from participating in a market.
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32) A supply curve shows
A) the quantities sold at different prices.
B) the marginal cost of producing one more unit of a good or service.
C) the marginal benefit from buying one more unit of a good or service.
D) the total cost of producing different quantities of a good or service.
33) The willingness of consumers to buy a product at different prices is shown on a
A) demand curve.
B) supply curve.
C) production possibilities frontier.
D) marginal cost curve.
Figure 4-1
Figure 4-1 shows Kendra’s demand curve for ice cream cones.
34) Refer to Figure 4-1. Kendra’s marginal benefit from consuming the first ice cream cone is
A) $9.00
B) $7.50
C) $3.50
D) $0.50
35) Refer to Figure 4-1. Kendra’s marginal benefit from consuming the second ice cream cone is
A) $6.50
B) $6.00
C) $3.00
D) $2.25
36) Refer to Figure 4-1. Kendra’s marginal benefit from consuming the third ice cream cone is
A) $13.00
B) $2.50
C) $1.50
D) $0.50
37) Refer to Figure 4-1. If the market price is $2.50, what is the consumer surplus on the first ice cream
cone?
A) $0.50
B) $1.00
C) $3.50
D) $9.00
38) Refer to Figure 4-1. If the market price is $2.50, what is the consumer surplus on the second ice
cream cone?
A) $0.50
B) $1.50
C) $3.00
D) $10.50
39) Refer to Figure 4-1. If the market price is $2.50, what is the consumer surplus on the third ice cream
cone?
A) $0
B) $0.50
C) $1.50
D) $2.50
40) Refer to Figure 4-1. If the market price is $2.50, what is Kendra’s consumer surplus?
A) $9.00
B) $7.50
C) $1.50
D) $0
41) Refer to Figure 4-1. If the market price is $3.50, what is the consumer surplus on the first ice cream
cone?
A) $0
B) $0.50
C) $3.50
D) $9.00
42) Refer to Figure 4-1. If the market price is $3.50, what is Kendra’s consumer surplus?
A) $9.00
B) $7.50
C) $3.50
D) $0
43) Refer to Figure 4-1. If the market price is $3.00, what is the consumer surplus on the first ice cream
cone?
A) $0.50
B) $1.00
C) $5.50
D) $9.00
44) Refer to Figure 4-1. If the market price is $3.00, what is the consumer surplus on the second ice
cream cone?
A) $0
B) $0.50
C) $3.00
D) $5.50
45) Refer to Figure 4-1. If the market price is $3.00, what is Kendra’s consumer surplus?
A) $6.50
B) $5.50
C) $2.50
D) $0.50
46) Refer to Figure 4-1. What is the total amount that Kendra is willing to pay for 1 ice cream cone?
A) $0.50
B) $3.50
C) $9.00
D) $13.50
47) Refer to Figure 4-1. What is the total amount that Kendra is willing to pay for 2 ice cream cones?
A) $1.50
B) $3.00
C) $5.50
D) $6.50
48) Refer to Figure 4-1. What is the total amount that Kendra is willing to pay for 3 ice cream cones?
A) $2.50
B) $7.50
C) $9.00
D) $13.50
49) Refer to Figure 4-1. If the market price is $2.50, what is the maximum number of ice cream cones that
Kendra will buy?
A) 1
B) 2
C) 3
D) 4
50) Refer to Figure 4-1. If the market price is $3.50, what is the maximum number of ice cream cones that
Kendra will buy?
A) 1
B) 2
C) 3
D) 4
51) Refer to Figure 4-1. If the market price is $4.00, what is the maximum number of ice cream cones that
Kendra will buy?
A) 0
B) 2
C) 3
D) 4
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52) Suppliers will be willing to supply a product in all of the following situations except when
A) the price received is greater than the additional cost of producing the product.
B) the price received is at least equal to the additional cost of producing the product.
C) the price received is equal to the additional cost of producing the product.
D) the price received is less than the additional cost of producing the product.
53) The difference between the lowest price a firm would have been willing to accept and the price it
actually receives from the sale of a product is called
A) producer surplus.
B) profit.
C) marginal revenue.
D) price differential.
Figure 4-2
54) Refer to Figure 4-2. What area represents producer surplus at a price of P1?
A) C
B) A + C
C) C + E
D) A + C + E
55) Refer to Figure 4-2. What area represents the decrease in producer surplus when the market price
falls from P2 to P1?
A) C + E
B) A + C + E
C) A + B
D) B + D
56) Two economists from Northwestern University estimated the benefit households received from
subscribing to broadband Internet service. They found that in the year they analyzed, 47 million
consumers paid an average of $36 per month to subscribe to a broadband Internet service, and
estimated the value of total consumer surplus for these subscribers was equal to $890.4 million. Based
on these numbers, what was the average monthly consumer surplus per subscriber for broadband
Internet service?
A) $0.05
B) $0.77
C) $13.06
D) $18.94
57) Producer surplus is the difference between the highest price someone is willing to pay and the price
he actually pays.
58) Producer surplus is the difference between the highest price a firm is willing to accept for a product
and the price it actually receives for the product.
59) The total amount of producer surplus in a market is equal to the area above the market supply curve
and below the market price.
60) The total amount of consumer surplus in a market is equal to the area below the market demand
curve and above the market price.
61) The additional cost to a firm of producing one more unit of a good or service is equal to producer
surplus.
62) The additional benefit to a consumer from consuming one more unit of a good or service is the
marginal benefit.
63) What is consumer surplus? Why would policy makers be interested in consumer surplus?
64) What is marginal cost? Which curve is also referred to as the marginal cost curve?
65) What area on a supply and demand graph represents producer surplus?
66) Assume the market price for tangerines is $18.00 per bushel. At the market price, tangerine growers
are willing to supply a quantity of 12,000 bushels per week. The quantity supplied drops to zero when
the price falls to $5.00 per bushel. Construct a graph showing this data, calculate the total producer
surplus in the market for tangerines, and show the total producer surplus on the graph.