Economics 1st Edition Karlan Test Bank Download

Economics 1st Edition Karlan
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Chapter 05
Efficiency
Multiple Choice Questions
1. In economics, the concept of surplus:
A. measures the benefit that people receive when they buy something for less than they would
have been willing to pay.
B. measures the benefit that people receive when they sell something for more than they would
have been willing to accept.
C. is the best way to look at the benefits people receive from successful transactions.
D. All of these are true.
2. The concept of surplus can:
A. show who loses from international trade.

B. show who benefits from a tax.
C. show who loses from minimum wage.
D. show any of these.
5-1
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McGraw-Hill Education.
3. The maximum price that a buyer would be willing to pay for a good or service is also called:
A. the reservation price.

B. the buyer-max price.
C. the reserved max price.
D. None of these terms is used.
4. A consumer's willingness to pay:
A. is the maximum price that a buyer would be willing to pay for a good or service.
B. is the minimum price that a buyer would be willing to pay for a good or service.
C. is their reserved maximum bid-price.
D. must always equal the seller's willingness to sell.
5. Which of the following prices could represent Sally's willingness to pay for a pair of shoes if she
bought them for $45?
A. $15.00
B. $25.00
C. $44.99
D. $55.00
6. If Billy's reservation price on a snowboard is $250, how many snowboards would he buy if the
market price of snowboards is $500?
A. 0
B. 1
C. 2
D. The amount of snowboards purchased would depend on Billy's income.
7. If Claire's reservation price on a sweater is $37, which of the following prices would she have to
observe in the market in order to buy a sweater?
A. $37.00
B. $37.01
C. $38.00
D. Claire would not buy a sweater at any of these prices.
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8. Which of the following prices could represent Eli's willingness to pay for a baseball glove if he
observed the market price of $43 and decided not buy one?
A. $37
B. $45
C. $50
D. None of these could represent Eli's willingness to pay.
9. A seller's willingness to sell:
A. is the maximum price that a seller is willing to accept in exchange for a good or service.
B. is the minimum price that a seller is willing to accept in exchange for a good or service.
C. is their reserved minimum bid-price.
D. must always equal the buyer's willingness to buy.
10. A seller always wants to:
A. sell for a price that is as high as possible, but never lower than his minimum.
B. sell for a price that is as low as possible, but never higher than his maximum.
C. sell for a price that is as high as possible, but never higher than his maximum.
D. sell for a price that is as low as possible, but never lower than his minimum.
11. A buyer always wants to:
A. buy for a price that is as low as possible, but never higher than his maximum.
B. buy for a price that is as high as possible, but never higher than his maximum.
C. buy for a price that is as low as possible, but never lower than his minimum.
D. buy for a price that is as high as possible, but never lower than his minimum.
12. Willingness to pay represents:
A. the point at which the benefit that a person will get from a good is equal to the benefit of
spending the money on another alternative.
B. the opportunity cost of a good.
C. the buyer's reservation price.
D. All of these represent willingness to pay.
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13. The willingness to pay of buyers' in a market:
A. is represented by the demand curve.

B. is represented by the supply curve.
C. explains why the demand curve is bowed-out.
D. explains why the demand curve is bowed-in.
14. At prices above a consumers' reservation price:
A. the opportunity cost is greater than the benefit from having the good.
B. the opportunity cost is less than the benefit from having the good.
C. the buyer will purchase the good.
D. None of these is true.
15. At prices below a consumer's maximum willingness to pay:
A. the buyer will participate in the market because the opportunity cost is less than the benefit
from having the good.
B. the buyer will participate in the market because the opportunity cost is more than the benefit
C. the buyer will not participate in the market because the opportunity cost is less than the benefit
D. the buyer will not participate in the market because the opportunity cost is more than the
benefit from having the good.
16. Each seller's opportunity costs are:
A. determined monetarily, which is why they can never be zero.

B. determined by a number of factors, none of which is monetary.
C. determined by a number of factors, including monetary considerations.
17. If Thelma's willingness to sell her homemade fudge is $4, then at which of the following prices
would Thelma sell her fudge?
A. $2
B. $3.99
C. $4.01
D. Thelma would not sell her fudge at any of these prices.
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18. If Sam's opportunity cost of a sweater is $37, which of the following prices would he have to
observe in the market in order to sell a sweater?
A. $37
B. $37.01
C. $50
D. Sam would sell a sweater at any of these prices.
19. Surplus is:
A. a way of measuring who benefits from transactions and by how much.

B. the difference between the price the buyer would have paid and the actual price paid.
C. the difference between the price the seller would have accepted and the actual sell price.
D. All of these statements are true.
20. Surplus is:
A. the difference between the price at which a buyer or seller would be willing to trade and the
actual price.
B. the difference between the willingness to pay and the actual price paid.
C. the difference between the willingness to sell and the actual price accepted.
21. When someone's willingness to pay is the same as the actual price paid for an item:
A. the individual will not purchase the item.

B. the individual's surplus is zero.
C. surplus cannot be maximized.
22. When Bob's willingness to pay for a cup of coffee is $1, and the price of a cup of coffee is $1:
A. Bob is indifferent about purchasing the coffee.

B. Bob will get no surplus by purchasing the coffee.
C. Bob will get the same surplus whether he purchases the coffee or not.
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23. Surplus is:
A. a better measure of the value that buyers and sellers get from participating in a market than
price itself.
B. maximized for individuals whose reservation price equals the market price.
C. negative for those who do not participate in a market.
24. A market has four individuals considering buying a grill for his backyard. Further assume that
grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a
necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills,
and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good
grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled
shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every
time he wants grilled shrimp, so he is willing to pay $200 for a grill.
If the market price of grills is $300, given the scenario described, the total consumer surplus
would be:
A. $170.
B. $1,070.
C. $200.
Given the scenario described, if the market price of grills is $320, who participates in the market?
A. Only Abe, Butch, and Collin participate.

B. Only Collin and Daniel participate.
C. Only Abe and Butch participate.
D. Only Daniel participates.
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If the market price of grills increases from $300 to $320, given the scenario described:
A. Collin would drop out of the market.

B. Collin's surplus would decrease the least.
C. Collin is the only consumer who would be affected in terms of surplus.
A. total consumer surplus would rise.

B. total consumer surplus would fall.
C. Collin and Butch would experience a decrease in consumer surplus, but Abe's consumer
surplus would rise.
D. Collin would experience a decrease in consumer surplus, but Abe and Butch would experience
a rise in consumer surplus.
5-7
If the market price of grills is $350, given the scenario described, total consumer surplus would
be:
A. $50.
B. $750.
C. $400.
D. $870.
If the market price of grills is $320, given the scenario described, Abe's consumer surplus would
be:
A. $400.
B. $350.
C. $320.
D. $80.
5-8
If the market price of grills falls from $375 to $330, given the scenario described, which of the
following can be said?
A. Butch will join the market, but receive no consumer surplus.

B. Butch and Collin will join the market, and together will receive$30 in consumer surplus.
C. Abe will experience a decrease in consumer surplus of $45.
D. Abe will experience an increase in consumer surplus of $45.
Given the scenario described, if the market price of grills falls from $395 to $340, then we can
say:
A. Abe's consumer surplus increases from $5 to $60, and total consumer surplus increases from
$5 to $70.
B. Abe's consumer surplus decreases from $60 to $5, and total consumer surplus decreases
from $70 to $5.
C. Collin's consumer surplus increases from $0 to $20, and total consumer surplus increases
from $5 to 70.
D. Butch's consumer surplus decreases from $10 to $0, and total consumer surplus increases
from $10 to $80.
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32. Assume there are three hardware stores in the market for hammers and that all three markets
produce a single, standard model hammer. House Depot is an enormous mass producer of
hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise and
can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family owned and
operated, independent hardware store and can offer hammers at a minimum price of $13.
Given the scenario described, if the market price of hammers was $13, then total producer
surplus would be:
A. $9.
B. $30.
C. $17.
D. $7.
surplus would be:
A. $7.
B. $9.
C. $17.
D. $30.
Given the scenario described, if the market price of hammers was $10, then:
A. only House Depot would gain surplus by supplying hammers to the market.
B. only House Depot and Lace Hardware would gain surplus by supplying hammers to the
market.
C. House Depot, Lace Hardware, and Bob's Hardware would all supply hammers to the market,
but Bob's would lose surplus.
D. only House Depot and Bob's Hardware would supply hammers to the market.
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Given the scenario described, if the market price of hammers increased from $7 to $11:
A. producer participation in the market would increase.

B. only Bob's Hardware would still lose surplus.
C. both Bob's Hardware and Lace Hardware would lose surplus.
D. House Depot is the only producer that will gain surplus.
Given the scenario described, if the market price of hammers decreased from $15 to $13, which
of the following can be said with certainty?
A. Producer participation in the market would decrease.

B. Total producer surplus would decrease.
C. Only Bob's Hardware will experience a drop in producer surplus.
D. Producer participation in the market will not be affected.
Given the scenario described, if the market price of hammers decreased from $17 to $12:

B. producer participation in the market would decrease.
C. producer participation in the market would not be affected.
D. total producer surplus would remain unchanged.
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A. total producer surplus would decrease from $9 to $5.

B. total producer surplus would increase from $5 to $9.
C. total producer surplus would decrease from $30 to $17.
A. total producer surplus would fall by $4.

B. producer surplus for each producer falls by $4.
C. House Depot's producer surplus falls by $4.
D. total producer surplus falls by $8.
A. total producer surplus falls by $5.

C. Bob's Hardware no longer sells hammers.
5-12
A. total producer surplus would increase.

B. total producer surplus would remain unchanged.
C. total producer surplus would decrease.
D. Total producer surplus cannot be determined with the information given.

C. producer participation in the market would remain unchanged.
D. total producer surplus would increase by $2.
A. total producer surplus would increase by $3.

B. total producer surplus would increase by $6.
C. total producer surplus would increase by $9.
5-13
A. total producer surplus would increase to $5.

B. total producer surplus would decrease to $1.
C. total producer surplus would increase to $17.
D. total producer surplus would decrease to $7.
A. producer surplus would increase for each producer.

B. producer surplus would increase only for House Depot.
C. producer surplus would remain unchanged for Bob's Hardware.
D. producer surplus would increase by $4 for Lace Hardware.
Given the scenario described, if the market price of hammers increased from $8 to $12, total
producer surplus would:
A. increase from $8 to $12.

B. increase by $4 for each producer.
C. increase by $4 for House Depot.
5-14
producer surplus would be:
A. $3.
B. $6.
C. $7.
D. $17.

B. increase from $1 to $12.
C. decrease from $14 to $8.
D. increase from $7 to $30.
A. House Depot's producer surplus would increase by $4.

B. Lace Hardware's producer surplus would increase by $3.
C. Bob's Hardware's producer surplus would remain unchanged.
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50.
According to the graph shown, total surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
5-16
51.
According to the graph shown, consumer surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
5-17
52.
According to the graph shown, producer surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
5-18
53.
According to the graph shown, consumer surplus is:
A. $30.
B. $15.
C. $45.
D. $90.
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54.
According to the graph shown, producer surplus is:
A. $10.
B. $6.
C. $2.
D. $20.
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55.
According to the graph shown, total surplus is:
A. $25.
B. $90.
C. $50.
D. $130.
5-21
56.
According to the graph shown:
A. consumer surplus is greater than producer surplus.

B. producer surplus is greater than consumer surplus.
C. total surplus is smaller than consumer surplus.
D. total surplus is smaller than producer surplus.
5-22
57.
According to the graph shown, if the market price increased:
A. consumer surplus would increase.

B. consumer surplus would decrease.
C. total surplus would increase.
D. None of these statements is true.
5-23
58.
According to the graph shown, if the market price decreased:
A. producer surplus would increase.

B. producer surplus would decrease.
5-24
59.
Assume an equilibrium of $7, with demand D and supply S2, in the graph shown. Total surplus is:
A. $32.
B. $16.
C. $4.
D. $8.
5-25
60.
Assuming the market is in equilibrium in the graph shown with demand D and supply S 2,
consumer surplus is:
A. $32.
B. $11.
C. $7.
D. equal to producer surplus.
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61.
Assuming the market is in equilibrium in the graph shown with demand D and supply S2, producer
surplus is:
A. greater than consumer surplus.

B. less than consumer surplus.
C. equal to consumer surplus.
D. $32.
5-27
62.
Assuming the market is in equilibrium in the graph shown with demand D and supply S1, total
surplus is:
A. greater than total surplus when market is in equilibrium at D and S2.

B. less than total surplus when market is in equilibrium at D and S2.
C. the same as total surplus when market is in equilibrium at D and S2.
D. $32.
5-28
63.
A. greater than consumer surplus when market is in equilibrium at D and S2.

B. less than consumer surplus when market is in equilibrium at D and S2.
C. the same as consumer surplus when market is in equilibrium at D and S2.
D. $32.
5-29
64.
A. $5.
B. $10.
C. $45.
D. $9.
5-30
65.
Assuming the market is in equilibrium in the graph shown with demand D and supply S 1, producer
surplus is:
A. $5.
B. $10.
C. $15.
D. $7.50.
5-31
66.
Assuming the market is in equilibrium in the graph shown with demand D and supply S1, total
surplus is:
A. $5.
B. $15.
C. $12.50.
D. $60.
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67.
Assume the market is in equilibrium in the graph shown at demand D and supply S1. If the supply
curve shifts to S2, and a new equilibrium is reached, which of the following is true?
A. Consumer surplus increases, but producer surplus decreases.

B. Consumer surplus decreases, but producer surplus increases.
C. Both consumer and producer surplus increases.
D. Both consumer and producer surplus decreases.
5-33
68.
A. Consumer surplus increases by $5.

B. Consumer surplus decreases by $5.
C. Consumer surplus increases by $11.
D. Consumer surplus decreases by $11.
5-34
69.
A. Producer surplus increases by $8.50.

B. Producer surplus decreases by $8.50.
C. Producer surplus increases by $7.50.
D. Producer surplus decreases by $16.
5-35
70.
A. Total surplus increases by $12.50.

B. Total surplus decreases by $12.50.
C. Total surplus increases by $19.50.
D. Total surplus decreases by $19.50.
5-36
71.
A. Consumer surplus increases, and total surplus increases.

B. Consumer surplus decreases, and total surplus increases.
C. Consumer surplus increases, and total surplus decreases.
D. Consumer surplus decreases, and total surplus decreases.
5-37
72.
A. Producer surplus would increase, and total surplus would increase.

B. Producer surplus would decrease, and total surplus would increase.
C. Producer surplus would increase, and total surplus would decrease.
D. Producer surplus would decrease, and total surplus would decrease.
5-38
73.
A. Total surplus would increase by $7.50.

B. Total surplus would decrease by $16.50.
C. Total surplus would increase to $32.
D. Total surplus would decrease to $12.50.
74. What consumer surplus is received by someone whose willingness to pay is $35 below the
market price of a good?
A. $0
B. $35
C. ($35 x P*)
D. None of these is correct.
75. What is the producer surplus earned by a seller whose willingness to sell is $10 below the market
price of a good?
A. $0
B. $10
C. (P* - $10)
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76. Total surplus:
A. can never be zero.

B. can never fall below zero.
C. is always above zero.
77. Total surplus:
A. can never be negative.

B. is always zero in an efficient market.
C. can be negative when the market is not in equilibrium.
78. Total surplus:
A. is producer and consumer surplus combined.

B. is producer surplus minus consumer surplus.
C. is consumer surplus minus producer surplus.
79. When a market is in equilibrium,
A. consumer surplus is minimized.

B. producer surplus is minimized.
C. total surplus is maximized.
A. total surplus is maximized.

B. the market is efficient.
C. total well being of all participants in the market is as high as possible.
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81. When a market is efficient,
A. there is no exchange that can make anyone better off without someone becoming worse off.
B. a central planner must be involved.
C. only increased prices can benefit those involved.
82. Efficient markets:
A. maximize total surplus.

B. can occur without a central planner.
C. occur when a market is in equilibrium.
83. When the market price is set above the equilibrium price:
A. efficiency does not occur.

B. total surplus is not maximized.
C. consumer surplus is decreased.
84. When the market price is set below the equilibrium price:

C. producer surplus is decreased.
85. When a market is not in equilibrium:
A. total surplus can be increased by a change in market price.

B. the market is not efficient.
C. there are exchanges that can make some better off without someone becoming worse off.
5-41
A. total surplus is not maximized.

B. there are no exchanges that can make some better off without someone becoming worse off.
C. the market is efficient.
87.
A. $36.
B. $72.
C. $120
D. None of these.
5-42
88.
A. $36.
B. $72.
C. $120.
D. None of these.
5-43
89.
A. the area under the demand curve and above the market price.
B. the area under the supply curve and above the price.
C. the area above the supply curve and below the price.
D. the area above the demand curve and below the price.
5-44
90.
5-45
91.
Assume the market was in equilibrium in the graph shown. If the market price were set to $12,
which of the following is true?
A. For those still interacting in the market, some surplus is transferred from buyer to seller.
B. For those still interacting in the market, some surplus is transferred from seller to buyer.
C. Producers gain the surplus of those buyers who dropped out of the market.
D. Consumers gain the surplus of those sellers who dropped out of the market.
5-46
92.
5-47
93.
Assume the market was in equilibrium in the graph shown. If the market price gets set to $7,
A. Some consumers gain surplus, but total surplus falls.

B. Some producers gain surplus, but total surplus falls.
C. Some producers lose surplus, but total surplus rises.
D. Some consumers lose surplus, but total surplus rises.
5-48
94.

95. Assume a market price gets set artificially high—that is, it gets set above the equilibrium price.
This change means:
A. Every consumer loses surplus, and it all gets transferred to producers.

B. Some consumers drop out of the market, and those left lose some surplus.
C. Every producer gains surplus, due to the higher price now being charged.
96. Assume a market price gets set artificially low—that is, it gets set below the equilibrium price.
This change means:
A. Every producer loses surplus, and it all gets transferred to consumers.

B. Some producers drop out of the market, and those left lose some surplus.
C. Every consumer gains surplus, due to the lower price now being charged.
5-49
97. Assume a market that has an equilibrium price of $4. If the market price is set at $8, which of the
following is true?
A. Some surplus is transferred from consumers to producers, but total surplus falls.
B. All surplus is transferred from consumers to producers, and total surplus stays the same.
C. Some surplus is transferred from producers to consumers, but total surplus falls.
D. Some surplus is transferred from consumers to producers, causing total surplus to increase.
98. Assume a market that has an equilibrium price of $7. If the market price is set at $3, which of the
following is true?
D. Some surplus is transferred from consumers to producers, causing total surplus to increase.
99. Assume a market that has an equilibrium price of $5. If the market price is set at $9, producer
surplus:
A. rises for some because of the increased price.

B. decreases for some because of fewer transactions taking place.
C. Both of these statements are true.
D. Neither of these statements is true.
100.Assume a market that has an equilibrium price of $8. If the market price is set at $7, consumer
surplus:

5-50
101.
According to the graph shown, if the market is in equilibrium, total surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
5-51
102.
According to the graph shown, if the market goes from equilibrium to having its price set at $10:
A. deadweight loss will occur.

B. seven fewer market transactions will occur.
C. consumer surplus will decrease.
5-52
103.
According to the graph shown, if the market goes from equilibrium to having its price set at $10:
A. market transactions will decrease by 7.

B. market transactions will decrease by 3.
C. market transactions will decrease by 10.
D. market transactions will not change, only price has changed.
5-53
104.
According to the graph shown, if the market is in equilibrium, consumer surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
5-54
105.
According to the graph shown, if the market is in equilibrium, producer surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
5-55
106.
According to the graph shown, if the market is in equilibrium, total surplus is area(s):
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
5-56
107.
According to the graph shown, if the market is in equilibrium, consumer surplus is area:
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
5-57
108.
According to the graph shown, if the market is in equilibrium, producer surplus is area:
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
5-58
109.
According to the graph shown, if the market goes from equilibrium to having its price set at $10
then:
A. consumer surplus will decrease from (A + B + C) to (B + C)only.

B. consumer surplus will increase from (A + B + C) to A only.
C. consumer surplus (B + C) will transfer to producers.
5-59
110.
then:
A. producer surplus will change from (D + E) to (D + E + B + C).

B. producer surplus will change from (B + C + D + E) to D only.
C. producer surplus will change from (D + E) to (D + B).
D. producer surplus will change from (D + B) to (D + E).
5-60
111.
then:
A. producer surplus rises by area B, but falls by area E.

B. producer surplus rises by area B, but falls by area D + E.
C. producer surplus rises by area B + C, but falls by area D + E.
D. producer surplus rises by area B + C, but falls by area E.
5-61
112.
then:
A. area (B + C) gets transferred from consumer to producer.

B. area (B + C) gets transferred from producer to consumer.
C. area B gets transferred from consumer to producer.
D. area B gets transferred from producer to consumer.
5-62
113.
then:
A. $12 gets transferred from consumer to producer in surplus.

B. $12 gets transferred from producer to consumer in surplus.
C. all consumer surplus lost is gained by producers.
D. all producer surplus lost is gained by consumers.
5-63
114.
then:
A. $12 gets transferred from consumer surplus to producer surplus.

B. area C is lost surplus due to fewer transactions taking place.
C. area E is lost surplus due to fewer transactions taking place.
5-64
115.
then:
A. area (C + E) is deadweight loss.

B. area B is transferred surplus from consumers to producers.
C. $12 of surplus gets transferred from consumers to producers.
D. All of these is true.
5-65
116.
then:
A. the market ceases to be efficient.

B. total surplus will decline.
C. deadweight loss will occur.
117.Deadweight loss:
A. occurs in markets that are inefficient.

B. occurs when markets are not in equilibrium.
C. is lost surplus due to less market transactions.
A. creates efficiency in markets.

B. is the loss of total surplus that results when the quantity of a good that is bought and sold is
below the market equilibrium quantity.
C. is the loss of total surplus that results when the quantity of a good that is bought and sold is
above the market equilibrium quantity.
D. always occurs in markets.
5-66
A. occurs when the market price is set above the equilibrium price.
B. occurs when the market price is set below the equilibrium price.
120.The loss of total surplus that results when the quantity of a good that is bought and sold is below
the market equilibrium quantity:
A. is deadweight loss.
B. occurs in inefficient markets.
C. occurs when the market price is set above the equilibrium price.
121.The loss of total surplus that results when the quantity of a good that is bought and sold is below
the market equilibrium quantity is called:
A. deadweight loss.
B. producer surplus.
C. consumer surplus.
D. total surplus.
122.We say a market is "missing" when:
A. there is no place for potential buyers and sellers to exchange a particular good or service.
B. the quantity being exchanged is at or close to zero.
C. there is an absence of a well-functioning market, and total surplus is lower than it could be.
123.Markets can be missing:
A. because public policy prevents the market from existing.

B. when the production of a particular good is banned.
C. because of a lack of accurate information between potential buyers and sellers.
5-67
124.Markets can be missing:
A. because public policy taxes a market.

B. when the sale of a particular service is banned.
C. when miscommunication of information between buyers and sellers leads to the wrong
equilibrium price.
125.Markets can be missing if:
A. there is a lack of technology that would make the exchanges possible.

B. there is a ban on the sale of a particular good.
C. there is a lack of accurate information between potential buyers and sellers.
126.Total surplus can be increased if:
A. new markets are created.

B. existing markets are improved.
C. markets get closer to equilibrium.
D. All of these can increase total surplus.
127.Well being can be increased by:
A. policies that help people do business more effectively.

B. technologies that help people share more and better information.
C. increasing the availability of accurate information.
128.Creating a market that was previously "missing":
A. redistributes surplus from buyer to seller.

B. redistributes surplus from seller to buyer.
C. redistributes surplus from one market to the one that was previously missing.
D. creates more total surplus.
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129.The creation of markets that were previously "missing":
A. increases economic well being.

B. increases total surplus.
C. benefits those who interact in the new markets.
130.The market to buy and sell organs:
A. is missing.
B. has been banned by public policy.
C. would create surplus for those who would interact in it.
131.An example of a "missing" market would be:
A. the market to buy and sell children for adoption.

B. the market to buy and sell a kidney.
C. the market to buy and sell heroin.
D. All of these markets are missing.
132.The market to buy and sell organs:
A. would increase the well being of those who interacted in it.

B. would not be considered "missing," since surplus could be gained from it.
C. would create negative surplus in those who could not afford an organ, but needed one.
D. would never exist because it is unfair.
5-69
Chapter 05 Efficiency Answer Key
Multiple Choice Questions
1. In economics, the concept of surplus:
A. measures the benefit that people receive when they buy something for less than they
would have been willing to pay.
B. measures the benefit that people receive when they sell something for more than they
would have been willing to accept.
C. is the best way to look at the benefits people receive from successful transactions.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-01 Use willingness to pay and willingness to sell to determine supply and demand at a given price.
Topic: Surplus
2. The concept of surplus can:
A. show who loses from international trade.

B. show who benefits from a tax.
C. show who loses from minimum wage.
D. show any of these.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
3. The maximum price that a buyer would be willing to pay for a good or service is also called:
A. the reservation price.

B. the buyer-max price.
C. the reserved max price.
D. None of these terms is used.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5-70
4. A consumer's willingness to pay:
A. is the maximum price that a buyer would be willing to pay for a good or service.
B. is the minimum price that a buyer would be willing to pay for a good or service.
C. is their reserved maximum bid-price.
D. must always equal the seller's willingness to sell.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5. Which of the following prices could represent Sally's willingness to pay for a pair of shoes if
she bought them for $45?
A. $15.00
B. $25.00
C. $44.99
D. $55.00
AACSB: Analytic
Blooms: Apply
Topic: Surplus
6. If Billy's reservation price on a snowboard is $250, how many snowboards would he buy if the
market price of snowboards is $500?
A. 0
B. 1
C. 2
D. The amount of snowboards purchased would depend on Billy's income.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5-71
7. If Claire's reservation price on a sweater is $37, which of the following prices would she have
to observe in the market in order to buy a sweater?
A. $37.00
B. $37.01
C. $38.00
D. Claire would not buy a sweater at any of these prices.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
8. Which of the following prices could represent Eli's willingness to pay for a baseball glove if he
observed the market price of $43 and decided not buy one?
A. $37
B. $45
C. $50
D. None of these could represent Eli's willingness to pay.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
9. A seller's willingness to sell:
A. is the maximum price that a seller is willing to accept in exchange for a good or service.
B. is the minimum price that a seller is willing to accept in exchange for a good or service.
C. is their reserved minimum bid-price.
D. must always equal the buyer's willingness to buy.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
10. A seller always wants to:
A. sell for a price that is as high as possible, but never lower than his minimum.
B. sell for a price that is as low as possible, but never higher than his maximum.
C. sell for a price that is as high as possible, but never higher than his maximum.
D. sell for a price that is as low as possible, but never lower than his minimum.
AACSB: Analytic
5-72
Blooms: Apply
Topic: Surplus
11. A buyer always wants to:
A. buy for a price that is as low as possible, but never higher than his maximum.
B. buy for a price that is as high as possible, but never higher than his maximum.
C. buy for a price that is as low as possible, but never lower than his minimum.
D. buy for a price that is as high as possible, but never lower than his minimum.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
12. Willingness to pay represents:
A. the point at which the benefit that a person will get from a good is equal to the benefit of
spending the money on another alternative.
B. the opportunity cost of a good.
C. the buyer's reservation price.
D. All of these represent willingness to pay.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
13. The willingness to pay of buyers' in a market:
A. is represented by the demand curve.

B. is represented by the supply curve.
C. explains why the demand curve is bowed-out.
D. explains why the demand curve is bowed-in.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5-73
14. At prices above a consumers' reservation price:
A. the opportunity cost is greater than the benefit from having the good.
B. the opportunity cost is less than the benefit from having the good.
C. the buyer will purchase the good.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
15. At prices below a consumer's maximum willingness to pay:
A. the buyer will participate in the market because the opportunity cost is less than the benefit
B. the buyer will participate in the market because the opportunity cost is more than the
C. the buyer will not participate in the market because the opportunity cost is less than the
D. the buyer will not participate in the market because the opportunity cost is more than the
AACSB: Analytic
Blooms: Apply
Topic: Surplus
16. Each seller's opportunity costs are:
A. determined monetarily, which is why they can never be zero.

B. determined by a number of factors, none of which is monetary.
C. determined by a number of factors, including monetary considerations.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5-74
17. If Thelma's willingness to sell her homemade fudge is $4, then at which of the following prices
would Thelma sell her fudge?
A. $2
B. $3.99
C. $4.01
D. Thelma would not sell her fudge at any of these prices.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
18. If Sam's opportunity cost of a sweater is $37, which of the following prices would he have to
observe in the market in order to sell a sweater?
A. $37
B. $37.01
C. $50
D. Sam would sell a sweater at any of these prices.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
19. Surplus is:
A. a way of measuring who benefits from transactions and by how much.

B. the difference between the price the buyer would have paid and the actual price paid.
C. the difference between the price the seller would have accepted and the actual sell price.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
5-75
20. Surplus is:
A. the difference between the price at which a buyer or seller would be willing to trade and the
actual price.
B. the difference between the willingness to pay and the actual price paid.
C. the difference between the willingness to sell and the actual price accepted.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
21. When someone's willingness to pay is the same as the actual price paid for an item:
A. the individual will not purchase the item.

B. the individual's surplus is zero.
C. surplus cannot be maximized.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
22. When Bob's willingness to pay for a cup of coffee is $1, and the price of a cup of coffee is $1:
A. Bob is indifferent about purchasing the coffee.

B. Bob will get no surplus by purchasing the coffee.
C. Bob will get the same surplus whether he purchases the coffee or not.
AACSB: Analytic
Blooms: Apply
Topic: Surplus
23. Surplus is:
A. a better measure of the value that buyers and sellers get from participating in a market
than price itself.
B. maximized for individuals whose reservation price equals the market price.
C. negative for those who do not participate in a market.
AACSB: Analytic
5-76
Blooms: Apply
Topic: Surplus
grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves
grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating
out every time he wants grilled shrimp, so he is willing to pay $200 for a grill.
If the market price of grills is $300, given the scenario described, the total consumer surplus
would be:
A. $170.
B. $1,070.
C. $200.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-02 Calculate consumer surplus based on a graph or table.
Topic: Consumer Surplus
Given the scenario described, if the market price of grills is $320, who participates in the
market?
A. Only Abe, Butch, and Collin participate.

B. Only Collin and Daniel participate.
C. Only Abe and Butch participate.
D. Only Daniel participates.
AACSB: Analytic
Blooms: Apply
5-77
A. Collin would drop out of the market.

B. Collin's surplus would decrease the least.
C. Collin is the only consumer who would be affected in terms of surplus.
AACSB: Analytic
Blooms: Apply
A. total consumer surplus would rise.

B. total consumer surplus would fall.
C. Collin and Butch would experience a decrease in consumer surplus, but Abe's consumer
surplus would rise.
D. Collin would experience a decrease in consumer surplus, but Abe and Butch would
experience a rise in consumer surplus.
AACSB: Analytic
Blooms: Apply
5-78
If the market price of grills is $350, given the scenario described, total consumer surplus would
be:
A. $50.
B. $750.
C. $400.
D. $870.
AACSB: Analytic
Blooms: Apply
If the market price of grills is $320, given the scenario described, Abe's consumer surplus
would be:
A. $400.
B. $350.
C. $320.
D. $80.
AACSB: Analytic
Blooms: Apply
5-79
If the market price of grills falls from $375 to $330, given the scenario described, which of the
following can be said?
A. Butch will join the market, but receive no consumer surplus.

B. Butch and Collin will join the market, and together will receive$30 in consumer surplus.
C. Abe will experience a decrease in consumer surplus of $45.
D. Abe will experience an increase in consumer surplus of $45.
AACSB: Analytic
Blooms: Apply
Given the scenario described, if the market price of grills falls from $395 to $340, then we can
say:
A. Abe's consumer surplus increases from $5 to $60, and total consumer surplus increases
from $5 to $70.
B. Abe's consumer surplus decreases from $60 to $5, and total consumer surplus decreases
from $70 to $5.
C. Collin's consumer surplus increases from $0 to $20, and total consumer surplus increases
from $5 to 70.
D. Butch's consumer surplus decreases from $10 to $0, and total consumer surplus increases
from $10 to $80.
AACSB: Analytic
Blooms: Apply
5-80
hammers and can offer a hammer for sale for a minimum of $7. Lace Hardware is a franchise
and can offer the hammer for sale for a minimum of $10. Bob's Hardware store is a family
owned and operated, independent hardware store and can offer hammers at a minimum price
of $13.
surplus would be:
A. $9.
B. $30.
C. $17.
D. $7.
AACSB: Analytic
Blooms: Apply
Topic: Producer Surplus
of $13.
surplus would be:
A. $7.
B. $9.
C. $17.
D. $30.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-03 Calculate producer surplus based on a graph or table.
5-81
of $13.
Given the scenario described, if the market price of hammers was $10, then:
A. only House Depot would gain surplus by supplying hammers to the market.
B. only House Depot and Lace Hardware would gain surplus by supplying hammers to the
market.
C. House Depot, Lace Hardware, and Bob's Hardware would all supply hammers to the
market, but Bob's would lose surplus.
D. only House Depot and Bob's Hardware would supply hammers to the market.
AACSB: Analytic
Blooms: Apply
of $13.

B. only Bob's Hardware would still lose surplus.
C. both Bob's Hardware and Lace Hardware would lose surplus.
D. House Depot is the only producer that will gain surplus.
AACSB: Analytic
Blooms: Apply
5-82
of $13.
Given the scenario described, if the market price of hammers decreased from $15 to $13,
which of the following can be said with certainty?
A. Producer participation in the market would decrease.

B. Total producer surplus would decrease.
C. Only Bob's Hardware will experience a drop in producer surplus.
D. Producer participation in the market will not be affected.
AACSB: Analytic
Blooms: Apply
of $13.

C. producer participation in the market would not be affected.
AACSB: Analytic
Blooms: Apply
5-83
of $13.
A. total producer surplus would decrease from $9 to $5.

B. total producer surplus would increase from $5 to $9.
C. total producer surplus would decrease from $30 to $17.
AACSB: Analytic
Blooms: Apply
of $13.
A. total producer surplus would fall by $4.

C. House Depot's producer surplus falls by $4.
AACSB: Analytic
Blooms: Apply
5-84
of $13.
A. total producer surplus falls by $5.

C. Bob's Hardware no longer sells hammers.
AACSB: Analytic
Blooms: Apply
of $13.
A. total producer surplus would increase.

B. total producer surplus would remain unchanged.
C. total producer surplus would decrease.
D. Total producer surplus cannot be determined with the information given.
AACSB: Analytic
Blooms: Apply
5-85
of $13.

C. producer participation in the market would remain unchanged.
AACSB: Analytic
Blooms: Apply
of $13.
A. total producer surplus would increase by $3.

B. total producer surplus would increase by $6.
C. total producer surplus would increase by $9.
AACSB: Analytic
Blooms: Apply
5-86
of $13.
A. total producer surplus would increase to $5.

B. total producer surplus would decrease to $1.
C. total producer surplus would increase to $17.
D. total producer surplus would decrease to $7.
AACSB: Analytic
Blooms: Apply
of $13.
A. producer surplus would increase for each producer.

B. producer surplus would increase only for House Depot.
C. producer surplus would remain unchanged for Bob's Hardware.
D. producer surplus would increase by $4 for Lace Hardware.
AACSB: Analytic
Blooms: Apply
5-87
of $13.

B. increase by $4 for each producer.
C. increase by $4 for House Depot.
AACSB: Analytic
Blooms: Apply
of $13.
producer surplus would be:
A. $3.
B. $6.
C. $7.
D. $17.
AACSB: Analytic
Blooms: Apply
5-88
of $13.

B. increase from $1 to $12.
C. decrease from $14 to $8.
D. increase from $7 to $30.
AACSB: Analytic
Blooms: Apply
of $13.
A. House Depot's producer surplus would increase by $4.

B. Lace Hardware's producer surplus would increase by $3.
C. Bob's Hardware's producer surplus would remain unchanged.
AACSB: Analytic
Blooms: Apply
5-89
50.
According to the graph shown, total surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-04 Calculate total surplus based on a graph or table.
Topic: Total Surplus
5-90
51.
According to the graph shown, consumer surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
AACSB: Analytic
Blooms: Apply
5-91
52.
According to the graph shown, producer surplus is area:
A. A + B + C.
B. B.
C. A.
D. A + B.
AACSB: Analytic
Blooms: Apply
5-92
53.
A. $30.
B. $15.
C. $45.
D. $90.
AACSB: Analytic
Blooms: Apply
5-93
54.
A. $10.
B. $6.
C. $2.
D. $20.
AACSB: Analytic
Blooms: Apply
5-94
55.
According to the graph shown, total surplus is:
A. $25.
B. $90.
C. $50.
D. $130.
AACSB: Analytic
Blooms: Apply
5-95
56.
According to the graph shown:
A. consumer surplus is greater than producer surplus.

B. producer surplus is greater than consumer surplus.
C. total surplus is smaller than consumer surplus.
D. total surplus is smaller than producer surplus.
AACSB: Analytic
Blooms: Apply
5-96
57.
According to the graph shown, if the market price increased:
A. consumer surplus would increase.

B. consumer surplus would decrease.
AACSB: Analytic
Blooms: Apply
5-97
58.
According to the graph shown, if the market price decreased:
A. producer surplus would increase.

B. producer surplus would decrease.
AACSB: Analytic
Blooms: Apply
5-98
59.
Assume an equilibrium of $7, with demand D and supply S2, in the graph shown. Total surplus
is:
A. $32.
B. $16.
C. $4.
D. $8.
AACSB: Analytic
Blooms: Apply
5-99
60.
A. $32.
B. $11.
C. $7.
D. equal to producer surplus.
AACSB: Analytic
Blooms: Apply
5-100
61.
Assuming the market is in equilibrium in the graph shown with demand D and supply S2,
producer surplus is:
A. greater than consumer surplus.

B. less than consumer surplus.
C. equal to consumer surplus.
D. $32.
AACSB: Analytic
Blooms: Apply
5-101
62.
Assuming the market is in equilibrium in the graph shown with demand D and supply S 1, total
surplus is:
A. greater than total surplus when market is in equilibrium at D and S2.

B. less than total surplus when market is in equilibrium at D and S2.
C. the same as total surplus when market is in equilibrium at D and S2.
D. $32.
AACSB: Analytic
Blooms: Apply
5-102
63.
A. greater than consumer surplus when market is in equilibrium at D and S2.

B. less than consumer surplus when market is in equilibrium at D and S2.
C. the same as consumer surplus when market is in equilibrium at D and S2.
D. $32.
AACSB: Analytic
Blooms: Apply
5-103
64.
A. $5.
B. $10.
C. $45.
D. $9.
AACSB: Analytic
Blooms: Apply
5-104
65.
producer surplus is:
A. $5.
B. $10.
C. $15.
D. $7.50.
AACSB: Analytic
Blooms: Apply
5-105
66.
Assuming the market is in equilibrium in the graph shown with demand D and supply S 1, total
surplus is:
A. $5.
B. $15.
C. $12.50.
D. $60.
AACSB: Analytic
Blooms: Apply
5-106
67.
Assume the market is in equilibrium in the graph shown at demand D and supply S1. If the
supply curve shifts to S2, and a new equilibrium is reached, which of the following is true?
A. Consumer surplus increases, but producer surplus decreases.

B. Consumer surplus decreases, but producer surplus increases.
C. Both consumer and producer surplus increases.
D. Both consumer and producer surplus decreases.
AACSB: Analytic
Blooms: Apply
5-107
68.
A. Consumer surplus increases by $5.

B. Consumer surplus decreases by $5.
C. Consumer surplus increases by $11.
D. Consumer surplus decreases by $11.
AACSB: Analytic
Blooms: Apply
5-108
69.
A. Producer surplus increases by $8.50.

B. Producer surplus decreases by $8.50.
C. Producer surplus increases by $7.50.
D. Producer surplus decreases by $16.
AACSB: Analytic
Blooms: Apply
5-109
70.
A. Total surplus increases by $12.50.

B. Total surplus decreases by $12.50.
C. Total surplus increases by $19.50.
D. Total surplus decreases by $19.50.
AACSB: Analytic
Blooms: Apply
5-110
71.
A. Consumer surplus increases, and total surplus increases.

B. Consumer surplus decreases, and total surplus increases.
C. Consumer surplus increases, and total surplus decreases.
D. Consumer surplus decreases, and total surplus decreases.
AACSB: Analytic
Blooms: Apply
5-111
72.
A. Producer surplus would increase, and total surplus would increase.

B. Producer surplus would decrease, and total surplus would increase.
C. Producer surplus would increase, and total surplus would decrease.
D. Producer surplus would decrease, and total surplus would decrease.
AACSB: Analytic
Blooms: Apply
5-112
73.
A. Total surplus would increase by $7.50.

B. Total surplus would decrease by $16.50.
C. Total surplus would increase to $32.
D. Total surplus would decrease to $12.50.
AACSB: Analytic
Blooms: Apply
74. What consumer surplus is received by someone whose willingness to pay is $35 below the
A. $0
B. $35
C. ($35 x P*)
AACSB: Analytic
Blooms: Apply
5-113
75. What is the producer surplus earned by a seller whose willingness to sell is $10 below the
A. $0
B. $10
C. (P* - $10)
AACSB: Analytic
Blooms: Apply
76. Total surplus:
A. can never be zero.

B. can never fall below zero.
C. is always above zero.
AACSB: Analytic
Blooms: Apply
77. Total surplus:
A. can never be negative.

B. is always zero in an efficient market.
C. can be negative when the market is not in equilibrium.
AACSB: Analytic
Blooms: Apply
78. Total surplus:
A. is producer and consumer surplus combined.

B. is producer surplus minus consumer surplus.
C. is consumer surplus minus producer surplus.
AACSB: Analytic
Blooms: Apply
5-114
A. consumer surplus is minimized.

B. producer surplus is minimized.
C. total surplus is maximized.
AACSB: Reflective Thinking

Blooms: Remember
Learning Objective: 05-05 Define efficiency in terms of surplus; and identify efficient and inefficient situations.
Topic: Efficiency
A. total surplus is maximized.

B. the market is efficient.
C. total well being of all participants in the market is as high as possible.

Blooms: Remember
Topic: Efficiency
81. When a market is efficient,
A. there is no exchange that can make anyone better off without someone becoming worse
off.
B. a central planner must be involved.
C. only increased prices can benefit those involved.

Blooms: Remember
Topic: Efficiency
5-115
82. Efficient markets:
A. maximize total surplus.

B. can occur without a central planner.
C. occur when a market is in equilibrium.

Blooms: Remember
Topic: Efficiency
83. When the market price is set above the equilibrium price:

C. consumer surplus is decreased.

Blooms: Remember
Topic: Efficiency
84. When the market price is set below the equilibrium price:

C. producer surplus is decreased.

Blooms: Remember
Topic: Efficiency
A. total surplus can be increased by a change in market price.

B. the market is not efficient.
C. there are exchanges that can make some better off without someone becoming worse off.

Blooms: Remember
5-116
Topic: Efficiency
A. total surplus is not maximized.

B. there are no exchanges that can make some better off without someone becoming worse
off.
C. the market is efficient.

Blooms: Remember
Topic: Efficiency
87.
A. $36.
B. $72.
C. $120
D. None of these.
AACSB: Analytic
Blooms: Apply
5-117
88.
A. $36.
B. $72.
C. $120.
D. None of these.
AACSB: Analytic
Blooms: Apply
5-118
89.
AACSB: Analytic
Blooms: Apply
5-119
90.
AACSB: Analytic
Blooms: Apply
5-120
91.

Blooms: Understand
Learning Objective: 05-06 Describe the distribution of benefits that results from a policy decision.
Topic: Transfer of Surplus
5-121
92.

Blooms: Understand
5-122
93.


Blooms: Understand
5-123
94.


Blooms: Understand
95. Assume a market price gets set artificially high—that is, it gets set above the equilibrium price.
This change means:
A. Every consumer loses surplus, and it all gets transferred to producers.

B. Some consumers drop out of the market, and those left lose some surplus.
C. Every producer gains surplus, due to the higher price now being charged.

Blooms: Understand
5-124
96. Assume a market price gets set artificially low—that is, it gets set below the equilibrium price.
This change means:
A. Every producer loses surplus, and it all gets transferred to consumers.

B. Some producers drop out of the market, and those left lose some surplus.
C. Every consumer gains surplus, due to the lower price now being charged.

Blooms: Understand
97. Assume a market that has an equilibrium price of $4. If the market price is set at $8, which of
the following is true?
D. Some surplus is transferred from consumers to producers, causing total surplus to
increase.

Blooms: Understand
98. Assume a market that has an equilibrium price of $7. If the market price is set at $3, which of
the following is true?
D. Some surplus is transferred from consumers to producers, causing total surplus to
increase.

Blooms: Understand
5-125
99. Assume a market that has an equilibrium price of $5. If the market price is set at $9, producer
surplus:


Blooms: Understand
100. Assume a market that has an equilibrium price of $8. If the market price is set at $7, consumer
surplus:


Blooms: Understand
5-126
101.
According to the graph shown, if the market is in equilibrium, total surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
AACSB: Analytic
Blooms: Apply
5-127
102.
According to the graph shown, if the market goes from equilibrium to having its price set at
$10:
A. deadweight loss will occur.

B. seven fewer market transactions will occur.
C. consumer surplus will decrease.
AACSB: Analytic
Blooms: Apply
Learning Objective: 05-07 Define and calculate deadweight loss.
Topic: Deadweight Loss
5-128
103.
$10:
A. market transactions will decrease by 7.

B. market transactions will decrease by 3.
C. market transactions will decrease by 10.
D. market transactions will not change, only price has changed.
AACSB: Analytic
Blooms: Apply
5-129
104.
According to the graph shown, if the market is in equilibrium, consumer surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
AACSB: Analytic
Blooms: Apply
5-130
105.
According to the graph shown, if the market is in equilibrium, producer surplus is:
A. $30.
B. $20.
C. $50.
D. $60.
AACSB: Analytic
Blooms: Apply
5-131
106.
According to the graph shown, if the market is in equilibrium, total surplus is area(s):
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
AACSB: Analytic
Blooms: Apply
5-132
107.
According to the graph shown, if the market is in equilibrium, consumer surplus is area:
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
AACSB: Analytic
Blooms: Apply
5-133
108.
According to the graph shown, if the market is in equilibrium, producer surplus is area:
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
AACSB: Analytic
Blooms: Apply
5-134
109.
$10 then:
A. consumer surplus will decrease from (A + B + C) to (B + C)only.

B. consumer surplus will increase from (A + B + C) to A only.
C. consumer surplus (B + C) will transfer to producers.
AACSB: Analytic
Blooms: Apply
5-135
110.
$10 then:
A. producer surplus will change from (D + E) to (D + E + B + C).

B. producer surplus will change from (B + C + D + E) to D only.
C. producer surplus will change from (D + E) to (D + B).
D. producer surplus will change from (D + B) to (D + E).
AACSB: Analytic
Blooms: Apply
5-136
111.
$10 then:
A. producer surplus rises by area B, but falls by area E.

B. producer surplus rises by area B, but falls by area D + E.
C. producer surplus rises by area B + C, but falls by area D + E.
D. producer surplus rises by area B + C, but falls by area E.
AACSB: Analytic
Blooms: Apply
5-137
112.
$10 then:
A. area (B + C) gets transferred from consumer to producer.

B. area (B + C) gets transferred from producer to consumer.
C. area B gets transferred from consumer to producer.
D. area B gets transferred from producer to consumer.
AACSB: Analytic
Blooms: Apply
5-138
113.
$10 then:
A. $12 gets transferred from consumer to producer in surplus.

B. $12 gets transferred from producer to consumer in surplus.
C. all consumer surplus lost is gained by producers.
D. all producer surplus lost is gained by consumers.
AACSB: Analytic
Blooms: Apply
5-139
114.
$10 then:
A. $12 gets transferred from consumer surplus to producer surplus.

B. area C is lost surplus due to fewer transactions taking place.
C. area E is lost surplus due to fewer transactions taking place.
AACSB: Analytic
Blooms: Apply
5-140
115.
$10 then:
A. area (C + E) is deadweight loss.

B. area B is transferred surplus from consumers to producers.
C. $12 of surplus gets transferred from consumers to producers.
D. All of these is true.
AACSB: Analytic
Blooms: Apply
5-141
116.
$10 then:
A. the market ceases to be efficient.

B. total surplus will decline.
C. deadweight loss will occur.
AACSB: Analytic
Blooms: Apply
117. Deadweight loss:
A. occurs in markets that are inefficient.

B. occurs when markets are not in equilibrium.
C. is lost surplus due to less market transactions.
AACSB: Analytic
Blooms: Apply
5-142
A. creates efficiency in markets.

B. is the loss of total surplus that results when the quantity of a good that is bought and sold is
above the market equilibrium quantity.
D. always occurs in markets.
AACSB: Analytic
Blooms: Apply
A. occurs when the market price is set above the equilibrium price.
B. occurs when the market price is set below the equilibrium price.
AACSB: Analytic
Blooms: Apply
120. The loss of total surplus that results when the quantity of a good that is bought and sold is
below the market equilibrium quantity:
A. is deadweight loss.
B. occurs in inefficient markets.
C. occurs when the market price is set above the equilibrium price.
AACSB: Analytic
Blooms: Apply
5-143
121. The loss of total surplus that results when the quantity of a good that is bought and sold is
below the market equilibrium quantity is called:
A. deadweight loss.
B. producer surplus.
C. consumer surplus.
D. total surplus.

Blooms: Remember
122. We say a market is "missing" when:
A. there is no place for potential buyers and sellers to exchange a particular good or service.
B. the quantity being exchanged is at or close to zero.
C. there is an absence of a well-functioning market, and total surplus is lower than it could be.

Blooms: Understand
Learning Objective: 05-08 Explain why correcting a missing market can make everyone better off.
Topic: Missing Markets
123. Markets can be missing:
A. because public policy prevents the market from existing.

B. when the production of a particular good is banned.
C. because of a lack of accurate information between potential buyers and sellers.

Blooms: Understand
124. Markets can be missing:
A. because public policy taxes a market.

B. when the sale of a particular service is banned.
C. when miscommunication of information between buyers and sellers leads to the wrong
equilibrium price.
5-144
Blooms: Understand
125. Markets can be missing if:
A. there is a lack of technology that would make the exchanges possible.

B. there is a ban on the sale of a particular good.
C. there is a lack of accurate information between potential buyers and sellers.

Blooms: Understand
126. Total surplus can be increased if:
A. new markets are created.

B. existing markets are improved.
C. markets get closer to equilibrium.
D. All of these can increase total surplus.

Blooms: Understand
127. Well being can be increased by:
A. policies that help people do business more effectively.

B. technologies that help people share more and better information.
C. increasing the availability of accurate information.

Blooms: Understand
5-145
128. Creating a market that was previously "missing":
A. redistributes surplus from buyer to seller.

B. redistributes surplus from seller to buyer.
C. redistributes surplus from one market to the one that was previously missing.
D. creates more total surplus.

Blooms: Understand
129. The creation of markets that were previously "missing":
A. increases economic well being.

B. increases total surplus.
C. benefits those who interact in the new markets.

Blooms: Understand
130. The market to buy and sell organs:
A. is missing.
B. has been banned by public policy.
C. would create surplus for those who would interact in it.

Blooms: Understand
131. An example of a "missing" market would be:
A. the market to buy and sell children for adoption.

B. the market to buy and sell a kidney.
C. the market to buy and sell heroin.
D. All of these markets are missing.

Blooms: Understand
5-146
132. The market to buy and sell organs:
A. would increase the well being of those who interacted in it.

B. would not be considered "missing," since surplus could be gained from it.
C. would create negative surplus in those who could not afford an organ, but needed one.
D. would never exist because it is unfair.

Blooms: Understand
5-147

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Multiple Choice Questions

1. In economics, the concept of surplus:

2. The concept of surplus can:

A. show who loses from international trade.

A. the reservation price.

4. A consumer's willingness to pay:

9. A seller's willingness to sell:

10. A seller always wants to:

11. A buyer always wants to:

12. Willingness to pay represents:

A. is represented by the demand curve.

14. At prices above a consumers' reservation price:

15. At prices below a consumer's maximum willingness to pay:

16. Each seller's opportunity costs are:

A. determined monetarily, which is why they can never be zero.

19. Surplus is:

A. a way of measuring who benefits from transactions and by how much.

20. Surplus is:

A. the individual will not purchase the item.

A. Bob is indifferent about purchasing the coffee.

A. Only Abe, Butch, and Collin participate.

A. Collin would drop out of the market.

A. total consumer surplus would rise.

A. Butch will join the market, but receive no consumer surplus.

A. producer participation in the market would increase.

A. Producer participation in the market would decrease.

A. producer participation in the market would increase.

A. total producer surplus would decrease from $9 to $5.

A. total producer surplus would fall by $4.

A. total producer surplus falls by $5.

A. total producer surplus would increase.

A. producer participation in the market would increase.

A. total producer surplus would increase by $3.

A. total producer surplus would increase to $5.

A. producer surplus would increase for each producer.

A. increase from $8 to $12.

A. increase from $8 to $14.

A. House Depot's producer surplus would increase by $4.

According to the graph shown, total surplus is area:

According to the graph shown, consumer surplus is area:

According to the graph shown, producer surplus is area:

According to the graph shown, consumer surplus is:

According to the graph shown, producer surplus is:

According to the graph shown, total surplus is:

According to the graph shown:

A. consumer surplus is greater than producer surplus.

According to the graph shown, if the market price increased:

A. consumer surplus would increase.

According to the graph shown, if the market price decreased:

A. producer surplus would increase.

A. greater than consumer surplus.

A. greater than total surplus when market is in equilibrium at D and S2.

A. greater than consumer surplus when market is in equilibrium at D and S2.

A. Consumer surplus increases, but producer surplus decreases.

A. Consumer surplus increases by $5.

A. Producer surplus increases by $8.50.

A. Total surplus increases by $12.50.

A. Consumer surplus increases, and total surplus increases.

A. Producer surplus would increase, and total surplus would increase.

A. Total surplus would increase by $7.50.

A. can never be zero.

77. Total surplus: