Question 1

At equilibrium price:

Accepted Answer

A)   consumer surplus is maximized and producer surplus is minimized.
B)   producer surplus is maximized and consumer surplus is minimized.
C)   the sum of consumer surplus and producer surplus is maximized.
D)   the sum of consumer surplus and producer surplus is minimized.

Question 2

If total surplus equals $45,000 at the equilibrium price, then total surplus will rise if the price falls below its equilibrium.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that a customer's willingness to pay for a product is $120, and the seller's willingness to sell is $110. If the negotiated price is $119, how much is consumer surplus?

Accepted Answer

A)   $1
B)   $9
C)   $10
D)   $20

Question 4

When prices fall below equilibrium:

Accepted Answer

A)   producer surplus falls and consumer surplus falls.
B)   producer surplus falls and consumer surplus rises.
C)   producer surplus falls and it is uncertain what happens to consumer surplus.
D)   consumer surplus falls and it is uncertain what happens to producer surplus.

Question 5

The market for an agricultural crop has an effective price floor. Then poor weather causes the market supply to decrease. What impact does this have on the effectiveness of the price floor in the market, ceteris paribus?

Accepted Answer

A)   The effectiveness of the price floor will be reduced.
B)   The effectiveness of the price floor will be increased.
C)   There will be no impact on the effectiveness of the price floor.
D)   There is no basis for predicting how the change in supply will impact the effectiveness of the price floor.

Question 6

Which of these is an example of external cost?

Accepted Answer

A)   higher level of incidence of cancer in people living next to a toxic dump
B)   market price of oranges
C)   learning to shop more efficiently as a result of taking an economics course
D)   paying a higher price for oranges at a farmer's market

Question 7

(Figure: Determining Surplus and Loss) In the graph, $12 would allow for an effective price ceiling.

Accepted Answer

A) True 
 B)False

Question 8

(Figure: Determining Surplus 4)  In the graph, consumer surplus equals _______.

Accepted Answer

A)   $8
B)   $10
C)   $13
D)   $40

Question 9

Deadweight loss reduces:

Accepted Answer

A)   consumer surplus and not producer surplus.
B)   producer surplus and not consumer surplus.
C)   consumer surplus and producer surplus.
D)   neither consumer surplus nor producer surplus.

Question 10

(Figure: Determining Surplus 3)  In the graph, producer surplus equals ________.

Accepted Answer

A)   $30
B)   $60
C)   $140
D)   $280

Question 11

(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $5, this is an example of an effective price floor.

Accepted Answer

A) True 
 B)False

Question 12

If the price of a good is lower than the equilibrium price:

Accepted Answer

A)   producers can gain at consumers' expense.
B)   consumers can gain at producers' expense.
C)   both producer surplus and consumer surplus increase.
D)   both producer surplus and consumer surplus decrease.

Question 13

(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $12, there is a shortage of 40.

Accepted Answer

A) True 
 B)False

Question 14

Market failure occurs only when a market completely stops conducting business.

Accepted Answer

A) True 
 B)False

Question 15

The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

Accepted Answer

A)   asymmetric information
B)   negative externality (external costs) 
C)   positive externality (external benefits) 
D)   public goods

Question 16

Public goods are difficult to provide in the private market because they have the characteristics of:

Accepted Answer

A)   rivalry and exclusivity.
B)   non-rivalry and non-exclusivity.
C)   rivalry and non-exclusivity.
D)   non-rivalry and exclusivity.

Question 17

(Figure: Determining Surplus 5)  According to the graph, consumer surplus is _____ and producer surplus is _____ at equilibrium.

Accepted Answer

A)   $400; $200
B)   $800; $400
C)   $20; $10
D)   40 units; 40 units

Question 18

(Figure: Determining Surplus and Loss)  Consider the graph. If the price is raised from $8 to $12, consumer surplus:

Accepted Answer

A)   increases by $120 and deadweight loss increases by $60.
B)   increases by $20 and deadweight loss increases by $70.
C)   decreases by $120 and deadweight loss increases by $70.
D)   decreases by $20 and deadweight loss increases by $70.

Question 19

The gap between the demand curve and the market price is called "deadweight loss."

Accepted Answer

A) True 
 B)False

Question 20

When demand for a product falls, ceteris paribus, what happens to equilibrium price and consumer surplus at that price?

Accepted Answer

A)   Equilibrium price rises and consumer surplus falls.
B)   Equilibrium price falls and consumer surplus falls.
C)   Equilibrium price rises and consumer surplus rises.
D)   Equilibrium price falls and consumer surplus rises.

Exam 4: Markets and Government

When demand for a product falls, ceteris paribus, what happens to equilibrium price and consumer surplus at that price?

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(Figure: Determining Surplus 4) In the graph, consumer surplus equals _______.

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The gap between the demand curve and the market price is called "deadweight loss."

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(Figure: Determining Surplus and Loss) In the graph, $12 would allow for an effective price ceiling.

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When prices fall below equilibrium:

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(Figure: Determining Surplus 5) According to the graph, consumer surplus is _____ and producer surplus is _____ at equilibrium.

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Public goods are difficult to provide in the private market because they have the characteristics of:

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Market failure occurs only when a market completely stops conducting business.

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Suppose that a customer's willingness to pay for a product is $120, and the seller's willingness to sell is $110. If the negotiated price is $119, how much is consumer surplus?

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Which of these is an example of external cost?

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Deadweight loss reduces:

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If the price of a good is lower than the equilibrium price:

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The government often provides goods that are nonrivalrous and nonexclusive to overcome which market failure?

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The market for an agricultural crop has an effective price floor. Then poor weather causes the market supply to decrease. What impact does this have on the effectiveness of the price floor in the market, ceteris paribus?

Correct AnswerverifiedShow Answer

If total surplus equals $45,000 at the equilibrium price, then total surplus will rise if the price falls below its equilibrium.

Correct AnswerverifiedShow Answer

At equilibrium price:

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(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $12, there is a shortage of 40.

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(Figure: Determining Surplus and Loss) Consider the graph. If the price is raised from $8 to $12, consumer surplus:

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(Figure: Determining Surplus 3) In the graph, producer surplus equals ________.

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(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $5, this is an example of an effective price floor.

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(Figure: Determining Surplus 5) According to the graph, consumer surplus is _ and producer surplus is _ at equilibrium.

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