Quiz 556

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Quiz 556

Related: Economics, Microeconomics

55 Questions

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Quiz 556

Subjective Short Answer

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 7-17
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 7-17. If the price of the good is $20, how many units will be demanded?

4. Refer to Table 7-17. 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?

7. Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, what is the change in total consumer surplus in the market?

8. Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, how much additional consumer surplus do consumers initially in the market at the $10 price receive?

9. Refer to Scenario 7-1. If the market equilibrium price falls from $10 to $5, how much consumer surplus do consumers entering the market after the price drop receive?

Figure 7-30

10. Refer to Figure 7-30. If the market equilibrium price is $120, how much is total consumer surplus?

11. Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much is the change in total consumer surplus in the market?

12. Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much is the increase in consumer surplus to the consumers who were initially in the market at the $120 price?

13. Refer to Figure 7-30. If the market equilibrium price falls from $120 to $80, how much consumer surplus do consumers entering the market after the price drop receive?

14. Suppose John’s cost for performing some carpentry work is $120. If John is paid $200 for the carpentry work, what is his producer surplus?

Table 7-18
The following table shows the cost of producing a good for the only four producers in a market.

Producer Cost
W $40
X $30
Y $20
Z $10

15. Refer to Table 7-18. If the market price is $28, which producers will supply units in the market?

16. Refer to Table 7-18. If the market equilibrium price is $28, what is total producer surplus in the market?

17. Refer to Table 7-18. If these four producers bid in an auction to supply one unit to a consumer, at what price will the good be sold?

Figure 7-31

18. Refer to Figure 7-31. If the market equilibrium price is $25, how much is total producer surplus in this market?

19. Refer to Figure 7-31. If the market equilibrium price is $35, how much is total producer surplus in this market?

20. Refer to Figure 7-31. If the market equilibrium price rises from $25 to $35, how much is the increase in producer surplus to the producers supplying units at the initial $25 price?

21. Refer to Figure 7-31. If the market equilibrium price rises from $25 to $35, how much is the producer surplus for the producers entering the market after the price increase?

Table 7-19

Buyer Willingness to
Pay ($)
Seller
Cost ($)
A 15 W 10
B 30 X 20
C 45 Y 30
D 60 Z 40

22. Refer to Table 7-19. How much is total consumer surplus at the equilibrium price in this market?

23. Refer to Table 7-19. How much is total producer surplus at the equilibrium price in this market?

24. Refer to Table 7-19. How much is total surplus at the equilibrium price in this market?

Figure 7-32

25. Refer to Figure 7-32. How much are consumer surplus, producer surplus, and total surplus at the market equilibrium price?

26. Refer to Figure 7-32. At what price will total surplus be maximized in this market?

27. Refer to Figure 7-32. If the government imposed a price floor at $35 in this market, how much is consumer surplus?

28. Refer to Figure 7-32. If the government imposed a price ceiling at $20 in this market, how much are consumer surplus, producer surplus, and total surplus?

Figure 7-33

29. Refer to Figure 7-33. How much is total consumer surplus in this market at the equilibrium price?

30. Refer to Figure 7-33. How much is total producer surplus in this market at the equilibrium price?

31. Refer to Figure 7-33. How much is total surplus in this market at the equilibrium price?

32. Refer to Figure 7-33. Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price. How much is total consumer surplus in this market at the new equilibrium price?

33. Refer to Figure 7-33. Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price. How much is total producer surplus in this market at the new equilibrium price?

34. Refer to Figure 7-33. Suppose demand shifts such that consumers wish to purchase 12 fewer units at every price. How much is total surplus in this market at the new equilibrium price?

Figure 7-34

35. Refer to Figure 7-34. Suppose the government imposes a price floor at $10 per unit in this market. With the price floor, how much is total consumer surplus?

36. Refer to Figure 7-34. Suppose the government imposes a price floor at $10 per unit in this market. With the price floor, how much is total producer surplus assuming those producers with the lowest cost are the ones who supply the market?

37. Refer to Figure 7-34. Suppose there is initially a price floor set at $10 in this market. If the government removed the price floor, by how much would total consumer surplus increase?

38. Refer to Figure 7-34. Suppose there is initially a price floor set at $10 in this market. If the government removed the price floor, by how much would total consumer surplus increase for those consumers who were purchasing the good when the price floor was in place?

39. Refer to Figure 7-34. Suppose there is initially a price floor set at $10 in this market. If the government removed the price floor, by how much would total consumer surplus increase for those consumers who enter the market after the price floor is removed?

40. Refer to Figure 7-34. Suppose there is initially a price floor set at $10 in this market. If the government removed the price floor, by how much would total producer surplus change, assuming the producers with the lowest cost were the ones supplying the market when the price floor was in place?

41. Refer to Figure 7-34. Suppose there is initially a price ceiling set at $4 in this market. How much is total producer surplus with the price ceiling in place?

42. Refer to Figure 7-34. Suppose there is initially a price ceiling set at $4 in this market. If the government removed the price ceiling, by how much would total producer surplus change?

43. Refer to Figure 7-34. Suppose there is initially a price ceiling set at $4 in this market. If the government removed the price ceiling, by how much would total producer surplus increase for those producers entering the market after the price ceiling is removed?

Scenario 7-2

Suppose market demand and market supply are given by the equations:

44. Refer to Scenario 7-2. How much is total consumer surplus at the equilibrium price in this market?

45. Refer to Scenario 7-2. How much is total producer surplus at the equilibrium price in this market?

46. Refer to Scenario 7-2. How much is total surplus at the equilibrium price in this market?

47. Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to

By how much does total consumer surplus increase as a result of this supply shift?

48. Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to

By how much does total consumer surplus increase for those consumers who were already willing to purchase the good with the original supply curve?

49. Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to

How much total consumer surplus goes to new consumers who enter the market after the supply curve shifts?

50. Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to

By how much does total producer surplus increase as a result of this supply shift?

51. 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?

52. 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.

53. 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.

54. 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).

55. 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.

Quiz 556