Question 1

The 'invisible hand':

Accepted Answer

A)   is the name of an old radio program
B)   is a concept used by Adam Smith to describe the virtues of free markets
C)   is a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy
D)   always rewards individuals for using the wellbeing of society as the basis for economic decision makingE) A) and B)
F) C) and D)

Question 2

Total surplus in a market is consumer surplus minus producer surplus.

Accepted Answer

A) True 
 B)False

Question 3

Caitlin would be willing to pay $50 to see Les Misérables but buys a ticket for only $30. Caitlin values the performance at:

Accepted Answer

A)   $20
B)   $30
C)   $50
D)   $80E) None of the above
F) B) and C)

Question 4

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

Accepted Answer

A) True 
 B)False

Question 5

Market power refers to the:

Accepted Answer

A)   company that generates electricity to firms
B)   buyers and sellers being price takers
C)   ability of to influence price
D)   market situation that only ever happens with a monopoly sellerE) All of the above
F) None of the above

Question 6

Consumer surplus equals the:

Accepted Answer

A)   value to buyers less the amount paid by buyers
B)   amount received by sellers less the costs of sellers
C)   value to buyers plus the amount paid by buyers
D)   amount received by sellers plus the costs of sellersE) A) and C)
F) B) and D)

Question 7

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Accepted Answer

A) True 
 B)False

Question 8

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Accepted Answer

A) True 
 B)False

Question 9

The economic meaning of cost is:

Accepted Answer

A)   a seller's willingness to sell
B)   a seller's consumer surplus
C)   the price the buyer pays to obtain the good
D)   a buyer's producer surplusE) All of the above
F) A) and B)

Question 10

Welfare economics is the study of the welfare system.

Accepted Answer

A) True 
 B)False

Question 11

Total surplus = Value to buyers - Costs to sellers.

Accepted Answer

A) True 
 B)False  True

Question 12

Efficiency is related to the size of the economic pie, whereas equity is related to how the pie gets sliced and distributed.

Accepted Answer

A) True 
 B)False

Question 13

Table 7-3
Market supply and demand for good X
 
-Refer to Table 7-3. At a price of $4.00, total surplus would be:

Accepted Answer

A)   more than it would be at the equilibrium price
B)   less than it would be at the equilibrium price
C)   the same as it would be at the equilibrium price
D)   there is insufficient information to sayE) A) and D)
F) A) and C) B

Question 14

Suppose the price of music downloads falls. Explain what will happen to:
a. existing buyers who were already downloading music.
b. potential buyers who have not yet begun downloading music.
c. the consumer surplus in this market.
d. the number of downloads that will now occur.

Accepted Answer

a. Existing buyers will be better off be...

Question 15

Given the following equations, show how equation 1 can be used to derive equation 2:
1. Total surplus = Consumer surplus + Producer surplus
2. Total surplus = Value to buyers - Cost to sellers

Accepted Answer

Start with equation 1:
Total surplus = C...

Question 16

Externalities are:

Accepted Answer

A)   external forces that help establish equilibrium price
B)   external forces that cause the price of a good to be higher than it otherwise would be
C)   side effects of government intervention in markets
D)   side effects passed on to a party other than the buyers and sellers in the marketE) None of the above
F) A) and B) D

Question 17

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises:

Accepted Answer

A)   costs of the seller
B)   the total welfare of buyers and sellers
C)   the expenditure of buyers
D)   the profit of buyersE) A) and D)
F) All of the above

Question 18

Laissez-faire is a French expression that literally means:

Accepted Answer

A)   'to make profits'
B)   'no more taxes'
C)   'allow them to do'
D)   'we need protection'E) A) and D)
F) A) and C)

Question 19

Welfare economics is the study of:

Accepted Answer

A)   how the allocation of resources affects economic wellbeing
B)   why poor people have low incomes
C)   the social welfare program adopted by the government
D)   how charities deliver welfare to the needyE) None of the above
F) B) and C)

Question 20

Graph 7-6
 
-In Graph 7-6, beyond the equilibrium quantity in a free market:

Accepted Answer

A)   the value to buyers is greater than the cost to sellers
B)   the cost to sellers is greater than the value to buyers
C)   cost to sellers is equal to the value to buyers
D)   producer surplus would be greater than consumer surplusE) A) and B)
F) A) and C)

Exam 7: Consumers, Producers and the Efficiency of Markets

The 'invisible hand':

Correct AnswerverifiedShow Answer

Total surplus in a market is consumer surplus minus producer surplus.

Correct AnswerverifiedShow Answer

Caitlin would be willing to pay $50 to see Les Misérables but buys a ticket for only $30. Caitlin values the performance at:

Correct AnswerverifiedShow Answer

Many economists believe that a market in human organs would lead to an efficient allocation of organs.

Correct AnswerverifiedShow Answer

Market power refers to the:

Correct AnswerverifiedShow Answer

Consumer surplus equals the:

Correct AnswerverifiedShow Answer

When market price increases, producer surplus increases because (1) producer surplus received by existing sellers increases and (2) new sellers enter the market.

Correct AnswerverifiedShow Answer

If a seller is able to control the market price, the seller has market power and the market outcome will be inefficient.

Correct AnswerverifiedShow Answer

The economic meaning of cost is:

Correct AnswerverifiedShow Answer

Welfare economics is the study of the welfare system.

Correct AnswerverifiedShow Answer

Total surplus = Value to buyers - Costs to sellers.

Correct AnswerverifiedTrue

Efficiency is related to the size of the economic pie, whereas equity is related to how the pie gets sliced and distributed.

Correct AnswerverifiedShow Answer

Table 7-3 Market supply and demand for good X -Refer to Table 7-3. At a price of $4.00, total surplus would be:

Correct AnswerverifiedB

Suppose the price of music downloads falls. Explain what will happen to: a. existing buyers who were already downloading music. b. potential buyers who have not yet begun downloading music. c. the consumer surplus in this market. d. the number of downloads that will now occur.

Correct Answerverifieda. Existing buyers will be better off be...View AnswerShow Answer

Given the following equations, show how equation 1 can be used to derive equation 2: 1. Total surplus = Consumer surplus + Producer surplus 2. Total surplus = Value to buyers - Cost to sellers

Correct AnswerverifiedStart with equation 1:Total surplus = C...View AnswerShow Answer

Externalities are:

Correct AnswerverifiedD

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it maximises:

Correct AnswerverifiedShow Answer

Laissez-faire is a French expression that literally means:

Correct AnswerverifiedShow Answer

Welfare economics is the study of:

Correct AnswerverifiedShow Answer

Graph 7-6 -In Graph 7-6, beyond the equilibrium quantity in a free market:

Correct AnswerverifiedShow Answer

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True

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B

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a. Existing buyers will be better off be...
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Start with equation 1:
Total surplus = C...
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D

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