ECON 2113 Practice Problems Ch.

7-1. Welfare economics is the study of the well-being of less fortunate people. False 7-3. With respect to welfare economics, the equilibrium price of a product is considered to be the best price because it maximi es total re!enue to firms and total utility to buyers. False 7-". Willingness to pay measures the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. False 7-1#. $onsumer surplus is a buyer%s willingness to pay minus the price. &rue 7-1'. ( consumer%s willingness to pay measures the cost of a good to the buyer. False 7-1). *f a consumer is willing and able to pay +'#.## for a particular good but only has to pay +1).##, the consumer surplus is +,.##. &rue 7-1-. .el!a is willing to pay +,-.## for a pair of shoes for a formal dance. /he finds a pair at her fa!orite outlet shoe store for +)0.##. .el!a%s consumer surplus is +17. &rue 7-1". /hannon buys a new $1 player for her car for +13-. /he recei!es consumer surplus of +'- on her purchase. 2er willingness to pay is +'-. False 7-'1. 3anine would be willing to pay +-# to see 4es 5is6rables, but buys a tic7et for only +3#. 3anine !alues the performance at +'#. False

7-'-. (my buys a new dog for +1-#. /he recei!es consumer surplus of +1## on her purchase. 2er willingness to pay is +-#. False 7-31. *f the price a consumer pays for a product is equal to a consumer%s willingness to pay, then the consumer surplus of that purchase would be ero. &rue 7-3'. /uppose there is an early free e in $alifornia that ruins the lemon crop. $onsumer surplus in the mar7et for lemons decreases. &rue 7-33. *f you pay a price exactly equal to your willingness to pay, then your consumer surplus is negati!e. False 7-3-. ( demand cur!e measures a buyer%s willingness to pay. &rue 7-3". $onsumer surplus equals the 8alue to buyers 9 (mount paid by buyers. &rue 7-)#. &he area below a demand cur!e and abo!e the price measures producer surplus. False 7-)). *f the price of a good increases, consumer surplus decreases. &rue 7-)-. When technology impro!es in the ice cream industry, consumer surplus will increase. &rue 7-,'. *n most mar7ets, consumer surplus reflects economic well-being. &rue

ECON 2113 Practice Problems Ch.7

7-,3. :ut-of-poc7et expenses plus the !alue of the seller%s own resources used in production are considered to be the seller%s total re!enue. False 7-,). $ost is a measure of the seller%s willingness to sell. &rue 7-,-. $ost refers to a seller%s producer surplus. False 7-,,. ( supply cur!e can be used to measure producer surplus because it reflects the actions of sellers. False 7-,7. ( seller would be willing to sell a product :;4< *F the price recei!ed is less than the cost of production. False

7-7-. (ccording to the graph shown, . > $ represents total surplus in the mar7et when the price is =1. &rue 7-7,. /uppose the demand for nachos increases. =roducer surplus in the mar7et for nachos will increase. &rue 7-77. *f demand decreases, the price of a product, as well as producer surplus, increases. False 7-70. &he /urgeon ?eneral announces that eating chocolate increases tooth decay. (s a result, the equilibrium mar7et price of chocolate increases, and producer surplus increases. False 7-7". /uppose consumer income increases. *f grass seed is a normal good, the equilibrium price of grass seed will decrease, and producer surplus in the industry will decrease. False 7-0#. =roducer surplus equals 8alue to buyers 9 (mount paid by buyers. False 7-0'. =roducer surplus is the area under the supply cur!e to the left of the amount sold. False 7-0". &he marginal seller is the seller who cannot compete with the other sellers in the mar7et. False

7-73. (ccording to the graph shown, . represents consumer surplus when the price is =1. &rue 7-7). (ccording to the graph shown, $ represents producer surplus when the price is =1. &rue

ECON 2113 Practice Problems Ch.7

7-"". 1enea produces coo7ies. 2er production cost is +3 per do en. /he sells the coo7ies for +0 per do en. 2er producer surplus is +3 per do en. False 7-1##. 1onald produces nails at a cost of +'## per ton. *f he sells the nails for +-## per ton, his producer surplus is +'## per ton. False 7-1#'. *f @oberta sells a shirt for +3#, and her producer surplus from the sale is +'1, her cost must ha!e been +-1. False 7-"#. (ccording to the graph shown, when the price is =', producer surplus is (. False 7-"1. (ccording to the graph shown, at the price of =1, producer surplus is (. False 7-"'. (ccording to the graph shown, when the price falls from =' to =1, producer surplus decreases by an amount equal to (. False 7-"3. (ccording to the graph shown, area . represents producer surplus to new producers entering the mar7et as the result of price rising from =1 to ='. &rue 7-"-. (ccording to the graph shown, area ( represents producer surplus to new producers entering the mar7et as the result of price rising from =1 to ='. False 7-"0. =roducer surplus measures the well-being of sellers. &rue 7-1#). (t ;ic7%s .a7ery, the cost to ma7e his homemade chocolate ca7e is +3 per ca7e. 2e sells three and recei!es a total of +'1 worth of producer surplus. ;ic7 must be selling his ca7es for +' each. False 7-111. We can say that the allocation of resources is efficient if producer surplus is maximi ed. False 7-11'. total surplus A !alue to sellers 9 costs of sellers is ;:& correct. &rue 7-11). &otal surplus in a mar7et is the total costs to sellers of pro!iding the goods less the total !alue to buyers of the goods. False 7-11-. *n a mar7et, total surplus is equal to producer surplus plus consumer surplus. &rue 7-11,. &otal surplus in a mar7et is represented by the total area under the demand cur!e and abo!e the price. False

ECON 2113 Practice Problems Ch.7

7-110. (t the equilibrium price, the good will be purchased by those buyers who !alue the good more than price. &rue 7-1'). &otal surplus in a mar7et equals 8alue to buyers 9 (mount paid by buyers. False 7-1'-. &otal surplus in a mar7et equals $onsumer surplus > =roducer surplus. &rue 7-13,. (n allocation of resources is said to be inefficient if a good is not being produced by the sellers with the lowest cost. &rue 7-1)-. When economists say that mar7ets are efficient, they are assuming that mar7ets are perfectly competiti!e. &rue 7-1)7. Bfficiency occurs when total surplus is maximi ed. &rue 7-1)". *nefficiency exists in any economy when a good is not being consumed by buyers who !alue it most highly. &rue 7-1-3. &he Cin!isible handD refers to the mar7etplace guiding the self-interests of mar7et participants into promoting general economic well-being. &rue 7-1,1. Bxternalities are side effects passed on to a party other than the buyers and sellers in the mar7et. &rue 7-1,-. When mar7ets fail, public policy can do nothing to impro!e the situation. False

7-17'. *f a mar7et is allowed to mo!e freely to its equilibrium price and quantity, then an increase in supply will increase consumer surplus. &rue