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The equilibrium of supply and demand in a market maximizes the total benefits to buyers and sellers of participating in that market.

A) True
B) False

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Figure 7-16 Figure 7-16 -Refer to Figure 7-16.Total surplus can be measured as the area A) JNK. B) JNML. C) JRL. D) JNL. -Refer to Figure 7-16.Total surplus can be measured as the area


A) JNK.
B) JNML.
C) JRL.
D) JNL.

E) B) and D)
F) None of the above

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Denise values a stainless steel dishwasher for her new house at $500,but she succeeds in buying one for $350.Denise's consumer surplus is


A) $150.
B) $350.
C) $500.
D) $850.

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

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Which of the following is true when the price of a good or service rises?


A) Buyers who were already buying the good or service are better off.
B) Some buyers exit the market.
C) The total consumer surplus in the market increases.
D) The total value of purchases before and after the price change is the same.

E) A) and C)
F) None of the above

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Total surplus is


A) equal to producer surplus plus consumer surplus.
B) equal to the total cost to sellers minus the total value to buyers.
C) equal to consumers' willingness to pay plus producers' cost.
D) greater than the sum of consumer surplus plus producer surplus.

E) C) and D)
F) A) and D)

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All else equal,what happens to consumer surplus if the price of a good increases?


A) Consumer surplus increases.
B) Consumer surplus decreases.
C) Consumer surplus is unchanged.
D) Consumer surplus may increase, decrease, or remain unchanged.

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

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The "invisible hand" is


A) used to describe the welfare system in the United States.
B) a concept developed by Adam Smith to describe the virtues of free markets.
C) a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the economy.
D) a term used by some economists to characterize the role of government in an economy - inevitable but invisible.

E) A) and B)
F) A) and C)

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Figure 7-1 Figure 7-1 -Refer to Figure 7-1.The value of the good to consumers minus the cost of the good to consumers amounts to $325 if the price of the good is A) $200. B) $150. C) $125. D) $100. -Refer to Figure 7-1.The value of the good to consumers minus the cost of the good to consumers amounts to $325 if the price of the good is


A) $200.
B) $150.
C) $125.
D) $100.

E) None of the above
F) A) and B)

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Producer surplus is the area


A) under the supply curve.
B) between the supply and demand curves.
C) below the price and above the supply curve.
D) under the demand curve and above the price.

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

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Table 7-11 Table 7-11 -Refer to Table 7-11.Both the demand curve and the supply curve are straight lines.If the price is $4 but only 6 units are bought and sold,producer surplus will be A) $16. B) $18. C) $24. D) $26. -Refer to Table 7-11.Both the demand curve and the supply curve are straight lines.If the price is $4 but only 6 units are bought and sold,producer surplus will be


A) $16.
B) $18.
C) $24.
D) $26.

E) A) and B)
F) None of the above

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Figure 7-18 Figure 7-18 -Refer to Figure 7-18.At the equilibrium price,consumer surplus is A) $480. B) $640. C) $1,120. D) $1,280. -Refer to Figure 7-18.At the equilibrium price,consumer surplus is


A) $480.
B) $640.
C) $1,120.
D) $1,280.

E) A) and C)
F) B) and C)

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Suppose that the equilibrium price in the market for widgets is $5.If a law increased the minimum legal price for widgets to $6,


A) the resulting increase in consumer surplus would be larger than any possible loss of producer surplus.
B) the resulting increase in consumer surplus would be smaller than any possible loss of producer surplus.
C) any possible increase in producer surplus would be larger than the loss of consumer surplus.
D) any possible increase in producer surplus would be smaller than the loss of consumer surplus.

E) A) and D)
F) A) and C)

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Coffee and tea are substitutes.Good weather that sharply increases the coffee bean harvest would


A) increase consumer surplus in the market for coffee and decrease producer surplus in the market for tea.
B) increase consumer surplus in the market for coffee and increase producer surplus in the market for tea.
C) decrease consumer surplus in the market for coffee and increase producer surplus in the market for tea.
D) decrease consumer surplus in the market for coffee and decrease producer surplus in the market for tea.

E) A) and C)
F) B) and C)

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Figure 7-18 Figure 7-18 -Refer to Figure 7-18.Assume demand increases and as a result,equilibrium price increases to $22 and equilibrium quantity increases to 110.The increase in producer surplus due to new producers entering the market would be A) $90. B) $210. C) $360. D) $480. -Refer to Figure 7-18.Assume demand increases and as a result,equilibrium price increases to $22 and equilibrium quantity increases to 110.The increase in producer surplus due to new producers entering the market would be


A) $90.
B) $210.
C) $360.
D) $480.

E) A) and B)
F) A) and C)

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Table 7-9 The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. Table 7-9 The numbers reveal the opportunity costs of providing 10 piano lessons of equal quality. -Refer to Table 7-9.You wish to purchase 10 piano lessons,so you take bids from each of the sellers.You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons.What bid will you accept? A) $351 B) $251 C) $249 D) $199 -Refer to Table 7-9.You wish to purchase 10 piano lessons,so you take bids from each of the sellers.You will not accept a bid below a seller's cost because you are concerned that the seller will not provide all 10 lessons.What bid will you accept?


A) $351
B) $251
C) $249
D) $199

E) B) and D)
F) B) and C)

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In which of the following circumstances would a buyer be indifferent about buying a good?


A) The amount of consumer surplus the buyer would experience as a result of buying the good is zero.
B) The price of the good is equal to the buyer's willingness to pay for the good.
C) The price of the good is equal to the value the buyer places on the good.
D) All of the above are correct.

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

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Dawn's bridal boutique is having a sale on evening dresses.The increase in consumer surplus comes from the benefit of the lower prices to


A) only existing customers who now get lower prices on the gowns they were already planning to purchase.
B) only new customers who enter the market because of the lower prices.
C) both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
D) Consumer surplus does not increase; it decreases.

E) A) and C)
F) A) and B)

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Figure 7-12 Figure 7-12 -Refer to Figure 7-12.Area B represents A) the combined profits of all producers when the price is P2. B) the increase in producer surplus to all producers as the result of an increase in the price from P1 to P2. C) producer surplus to new producers entering the market as the result of an increase in the price from P1 to P2. D) that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P1 to P2. -Refer to Figure 7-12.Area B represents


A) the combined profits of all producers when the price is P2.
B) the increase in producer surplus to all producers as the result of an increase in the price from P1 to P2.
C) producer surplus to new producers entering the market as the result of an increase in the price from P1 to P2.
D) that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P1 to P2.

E) B) and C)
F) None of the above

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Table 7-7 The following table represents the costs of five possible sellers. Table 7-7 The following table represents the costs of five possible sellers. -Refer to Table 7-7.If the market price is $1,000,the producer surplus in the market is A) $700. B) $750. C) $2,250. D) $3,700. -Refer to Table 7-7.If the market price is $1,000,the producer surplus in the market is


A) $700.
B) $750.
C) $2,250.
D) $3,700.

E) A) and B)
F) B) and C)

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Figure 7-12 Figure 7-12 -Refer to Figure 7-12.Suppose producer surplus is larger than C but smaller than A+B+C.The price of the good must be A) lower than P1. B) P1. C) between P1 and P2. D) higher than P2. -Refer to Figure 7-12.Suppose producer surplus is larger than C but smaller than A+B+C.The price of the good must be


A) lower than P1.
B) P1.
C) between P1 and P2.
D) higher than P2.

E) None of the above
F) C) and D)

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