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Exam 7: Consumers, Producers, and the Efficiency of Markets

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Question 111

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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.

E) A) and D)
F) All of the above

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Question 112

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Unless markets are perfectly competitive, they may fail to maximize the total benefits to buyers and sellers.

A) True
B) False

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Question 113

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Figure 7-14 ​ -Refer to Figure 7-14. 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?

Figure 7-6 -Refer to Figure 7-6. When the price is P₂, producer surplus is

Figure 7-9 -Refer to Figure 7-9. If the price were P₃, consumer surplus would be represented by the area

Efficiency in a market is achieved when

Table 7-13 The following table shows the cost of producing a good for the only four producers in a market. $\begin{array} { | l | l | } \hline \text { Producer } & \text { Cost } \\\hline W & \$ 40 \\\hline X & \$ 30 \\\hline Y & \$ 20 \\\hline Z & \$ 10 \\\hline\end{array}$ -Refer to Table 7-13. If the market equilibrium price is $28, what is total producer surplus in the market?

If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good.

Figure 7-14 ​ -Refer to Figure 7-14. 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?

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

Which of the following events would increase producer surplus?

Figure 7-14 ​ -Refer to Figure 7-14. 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?

Figure 7-13 ​ -Refer to Figure 7-13. How much is total consumer surplus in this market at the equilibrium price?

Producer surplus is the amount a seller is paid minus the cost of production.

Suppose there is an early freeze in California that reduces the size of the lemon crop. As the price of lemons rises, what happens to consumer surplus in the market for lemons?

Scenario 7-1 Suppose market demand is given by the equation $Q ^ { D } = 40 - 2 P$ -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?

The willingness to pay is the maximum amount that a buyer will pay for a good and measures how much the buyer values the good.

Table 7-14 $\begin{array}{l}\begin{array} { | l | l | } \hline \text { Buyer } & \begin{array} { l } \text { Willingness to } \\\text { Pay } ( \$ )\end{array} \\\hline \text { A } & 15 \\\hline B & 30 \\\hline \text { C } & 45 \\\hline \text { D } & 60 \\\hline\end{array}\\\\\begin{array} { | l | l | } \hline \text { Seller } & \text { Cost (\$) } \\\hline W & 10 \\\hline \mathrm { X } & 20 \\\hline \mathrm { Y } & 30 \\\hline \mathrm { Z } & 40 \\\hline\end{array}\end{array}$ -Refer to Table 7-14. How much is total consumer surplus at the equilibrium price in this market?