PS3

1. Problem 1.9 on page 180 in your book

2. Problem 3.12 on page 183 in your book
3. Problem 3.14 on page 183 in your book
4. Problem 4.7 on page 186 in your book
5.

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays
is called
A)

the substitution effect.

B)

producer surplus.
C)

the income effect.

D)

consumer surplus.

6.

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay $200 for a new racquet, but buys one on sale for
$125. Paul's consumer surplus from the purchase is
A)

$325
B)

$200
C)

$125
D)

$75

7.

Willingness to pay measures

A)
the maximum price a buyer is willing to pay for a product minus the amount the buyer actually pays for it.
B)

the maximum price that a buyer is willing to pay for a good.

C)

the maximum price a buyer is willing to pay minus the minimum price a seller is willing to accept.
D)

the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept for the good.

8.

Consumers are willing to purchase a product up to the point where

A)

the marginal benefit of consuming the product equals the area below the supply curve and above the market price.
B)

the marginal benefit of consuming a product is equal to its price.

C)

the consumer surplus is equal to the producer surplus.

D)

the marginal benefit of consuming the product is equal to the marginal cost of consuming it.

9.

Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.
A)

marginal cost
B)

supply
C)

production possibilities
D)

demand

10.
Marginal cost is
A)

the total cost of producing one unit of a good or service.

B)

the difference between the lowest price a firm would have been willing to accept and the price it actually receives.
C)

the average cost of producing a good or service.

D)

the additional cost to a firm of producing one more unit of a good or service.

Table 4-2

The Waco Kid's Marginal Cost

Cowboy Hats (dollars)
1st hat $24
2nd hat 30
3rd hat 38
4th hat 46
11.

Refer to Table 4-2. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in
producing western wear. If the market price of The Waco Kid's cowboy hats is $40
A)

producer surplus from the first hat is $40.

B)

there will be a surplus; as a result, the price will fall to $24.

C)

producer surplus will equal $26.

D)

The Waco Kid will produce four hats.

12.

Refer to Table 4-2. The table above lists the marginal cost of cowboy hats by The Waco Kid, a firm that specializes in
producing western wear. If the price of cowboy hats increases from $38 to $46
A)
consumers will buy no cowboy hats.
B)

the marginal cost of producing the third cowboy hat will increase to $46.
C)

there will be a surplus of cowboy hats.

D)

producer surplus will rise from $22 to $46.

13.

The total amount of producer surplus in a market is equal to

A)

the difference between quantity supplied and quantity demanded.

B)

the area above the market supply curve.

C)

the area above the market supply curve and below the market price.
D)

the area between the demand curve and the supply curve below the market price.

14.

Consumer surplus in a market for a product would be equal to ________ if the market price was zero.
A)

the area above the supply curve

B)

zero
C)

the area under the demand curve

D)

the area between the supply curve and the demand curve
 15.

A ________ curve shows the marginal cost of producing one more unit of a good or service.
A)

demand
B)

production possibilities
C)

supply
D)

marginal benefit

16.

Suppliers will be willing to supply a product only if

A)

the price is higher than the average 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 less than the additional cost of producing the product.
D)

the price received is at least double the additional cost of producing the product.

Figure 4-2
 17.

Refer to Figure 4-2. What area represents producer surplus at a price of P2?
A)

A+B+C
B)

A+B+C+D+E
C)

B+D
D)

A+B

18.

Refer to Figure 4-2. What area represents the increase in producer surplus when the market price rises from P1 to P2?
A)

B+D
B)

A+B
C)

C+E
D)

A+C+E
19.
Economic efficiency in a competitive market is achieved when
A)

the marginal benefit equals the marginal cost from the last unit sold.
B)

consumers and producers are satisfied.

C)

economic surplus is equal to consumer surplus.

D)

producer surplus equals the total amount firms receive from consumers minus the cost of production.

Figure 4-3

Figure 4-3 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80.
Now suppose producers decide to cut output to 40 in order to raise the price to $18.

20.

Refer to Figure 4-3. What is the value of consumer surplus at a price of $18??
A)

$60
B)

$120
C)

$240
D)
$180
21.

Refer to Figure 4-3. What is the value of producer surplus at a price of $18??
A)

$340
B)

$300
C)

$240
D)

$720

22.

Refer to Figure 4-3. What is the value of the deadweight loss at a price of $18?
A)

$1,040
B)

$660
C)

$100
D)

$180

23.

Refer to Figure 4-3. At a price of $18 consumers are willing to buy 40 pounds of tiger shrimp. Is this an economically
efficient quantity?
A)

No, the marginal cost of the 40th unit exceeds the marginal benefit of the 40th unit.
B)

Yes, otherwise consumers would not buy 40 units.

C)
Yes, because $18 shows what consumers are willing to pay for the product.
D)

No, the marginal benefit of the 40th unit exceeds the marginal cost of that 80th unit.

24.

________ is maximized in a competitive market when marginal benefit equals marginal cost.
A)

Economic surplus
B)

Selling price
C)

Deadweight loss
D)

Marginal profit
Figure 4-4

25.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. At a
price of $9
A)

producers should lower the price to $3 in order to sell the quantity demanded of 4,000.
B)

the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently high.
C)

the marginal cost of pecans is greater than the marginal benefit; therefore, output is inefficiently low.
D)
the marginal benefit of pecans is greater than the marginal cost; therefore, output is inefficiently low.

26.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If the
price of pecans is $3
A)

the quantity supplied is less than the economically efficient quantity.

B)

the quantity supplied is economically efficient but the quantity demanded is economically inefficient.
C)

not enough consumers want to buy pecans.

D)

economic surplus is maximized.

27.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If the
price of pecans is $3, what changes in the market would result in an economically efficient output?
A)

The price would increase, the demand would decrease and the supply would increase.
B)

The quantity supplied would increase, the quantity demanded would decrease and the equilibrium price would increase.
C)

The price would increase, the quantity demanded would decrease and the quantity supplied would increase.
D)

The price would increase, the quantity supplied would decrease, and the quantity demanded would increase.

28.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. If 8,000
pounds of pecans are sold
A)

producer surplus equals consumer surplus.

B)
marginal benefit is equal to marginal cost.
C)

the deadweight loss is equal to economic surplus.

D)

the marginal benefit of each of the 8,000 pounds of pecans equals $9.

29.

Refer to Figure 4-4. The figure above represents the market for pecans. Assume that this is a competitive market. Which
of the following is true?
A)

If the price of pecans is $9 consumers will purchase more than the economically efficient output.
B)

Both 40,000 pounds and 12,000 pounds are economically inefficient rates of output.
C)

If the price of pecans is $3 producers will sell 12,000 pounds of pecans but this output will be economically inefficient.
D)

If the price of pecans is $3 the output will be economically efficient but there will be a deadweight loss.
30.

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the
likely effect on the market for sparkling wine in Vinyardia?
A)

Quantity demanded will decrease, quantity supplied will increase, and a shortage will result.
B)

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.
C)

Quantity demanded will increase, quantity supplied will decrease, and a surplus will result.
D)

Quantity demanded will increase, quantity supplied will decrease, and a shortage will result.

31.

Which of the following is not a result of government price controls?

 A)

Price controls decrease economic efficiency.

B)

Some people win and some people lose.

C)

Price controls benefit poor consumers but harm producers and wealthy consumers.
D)

A deadweight loss will occur.

32.

Economists are reluctant to state that price controls are desirable or undesirable because
A)

sometimes price controls result in increases in economic efficiency and sometimes they result in decreases in economic
efficiency.
B)

whether the gains from the winners exceed the losses from the losers is not strictly an economic question.
C)

it is impossible to evaluate the impact on quantity demanded and quantity supplied as a result of price controls.
D)

economists are reluctant to conduct positive analysis of price controls.

Figure 4-6
Figure 4-6 shows the demand and supply curves for the almond market. The government believes that the equilibrium
price is too low and tries to help almond growers by setting a price floor at Pf.

33.

Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?
A)

A+B
B)

A
C)

A+B+E+F
D)

A+B+E
34.

Refer to Figure 4-6. What is the area that represents producer surplus after the imposition of the price floor?
A)

B+E
B)

A+B+E
C)

B+E+F
D)
B+C+D+E

35.

Refer to Figure 4-6. What area represents the portion of consumer surplus that has been transferred to producer surplus as
a result of the price floor?
A)

B+E
B)

E
C)

B
D)

B+C

36.

Refer to Figure 4-6. What area represents the deadweight loss after the imposition of the price floor?
A)

F+G
B)

C+D
C)

C+D+F+G
D)

C+D+G

Table 4-3

Quantity of
Hourly Wage Quantity of
Labor
(dollars) Labor Supplied
Demanded
$7.50 530,000 650,000
8.50 550,000 630,000
9.50 570,000 610,000
10.50 590,000 590,000
11.50 610,000 570,000
12.50 630,000 550,000
Table 4-3 shows the demand and supply schedules for labor market in the city of Pixley.

37.

Refer to Table 4-3. What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?
A)

W* = $10.50; Q* = 1,200,000
B)

W* = $11.50; Q* = 570,000
C)

W* = $10.50; Q* = 590,000
D)

W* = $9.50; Q* = 570,000
38.

Refer to Table 4-3. If a minimum wage of $9.50 an hour is mandated, what is the quantity of labor demanded?
A)

40,000
B)

570,000
C)

610,000
D)

1,180,000
39.

Refer to Table 4-3. If a minimum wage of $9.50 an hour is mandated, what is the quantity of labor supplied?
A)

40,000
B)

570,000
C)

610,000
 D)

1,180,000
40.

Refer to Table 4-3. If a minimum wage of $9.50 is mandated there will be a

A)

shortage of 40,000 units of labor.

B)

surplus of 20,000 units of labor.

C)

shortage of 20,000 units of labor.

D)

surplus of 40,000 units of labor.

41.

Refer to Table 4-3. Suppose that the quantity of labor demanded decreases by 80,000 at each wage level. What are the new
free market equilibrium hourly wage and the new equilibrium quantity of labor?
A)

W = $8.50; Q = 550,000
B)

W = $12.50; Q = 630,000
C)

W = $9.50; Q = 590,000
D)

W = $9.50; Q = 570,000
42. The actual division of the burden of a tax between buyers and sellers in a market is called
A)

tax liability.
B)

tax bearer.
C)
tax parity.
D)

tax incidence.

43.

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the
A)

demand curve is downward sloping and the supply curve is upward sloping.
B)

demand curve for imported champagne is horizontal.

C)

supply curve for imported champagne is vertical.

D)

demand curve for imported champagne is vertical.

44.

Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in
the market for this product,
A)

the tax burden will be shared by buyers and sellers.

B)

sellers bear the entire burden of the tax.

C)

the tax burden will be shared among the government, buyers and sellers.
D)

buyers bear the entire burden of the tax.

Figure 4-8
Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.

45.

Refer to Figure 4-8. What is the size of the unit tax?

A)

$2
B)

$5
C)

$7
D)

$12
46.

Refer to Figure 4-8. How much of the tax is paid by buyers?

A)

$2
B)

$5
C)

$7
D)

$12
47.
Refer to Figure 4-8. The price buyers pay after the tax is
A)

$7.
B)

$20.
C)

$22.
D)

$27.
48.

Refer to Figure 4-8. For each unit sold, the price sellers receive after the tax (net of tax) is
A)

$20.
B)

$22.
C)

$27.
D)

$32.
49.

Refer to Figure 4-8. How much of the tax is paid by producers?

A)

$2
B)

$5
C)

$7
D)

$12
 50.

Refer to Figure 4-8. As a result of the tax, is there a loss in consumer surplus?
A)

No, because the market reaches a new equilibrium

B)

Yes, because consumers paying a price above the economically efficient price.
C)

No, because consumers are charged a lower price to cover their tax burden.
D)

No, because the producer pays the tax.

51.

If the quantity of fishing poles demanded is represented by the equation QD = 60 - P then the corresponding price of
fishing poles is represented by the equation
A)

P = QD + 60.
B)

P = -60 + QD.
C)

P = 60 - QD.
D)

P = 0.6QD + 10.

52.

The demand and supply equations for the apple market are:
Demand: P = 12 - 0.01Q
Supply: P = 0.02Q
where P= price per bushel, and Q=quantity.

a. Calculate the equilibrium price and quantity.

b. Suppose the government guaranteed producers a price of $10 per bushel. What would be the effect on quantity
supplied? Provide a numerical value.
c. By how much would the $10 price change the quantity of apples demanded? Provide a numerical value.
d. Would there be a shortage or surplus of apples?
e. What is the size of this shortage or surplus? Provide a numerical value.