Economics Krugman 3rd Edition Test Bank

Economics Krugman 3rd Edition Test Bank

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Name TestBank Chapter 04: Consumer and Producer Surplus

Description Question pool for Chapter 04: Consumer and Producer Surplus
Instructions

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Multiple Choice 0 points

Question
In many parts of the United States when Wal-Mart opens a new store, some smaller retailers go out
of business. One of the reasons for this development could be that:
Answer Wal-Mart practices unfair pricing methods that reduce consumer surplus over time.
consumers in those areas receive no consumer surplus from Wal-Mart.
consumers in those areas receive a larger consumer surplus from shopping at Wal-Mart
than from the smaller stores.
smaller stores increase prices to compete.

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Question
Consider the market for milkshakes. An increase in the consumer surplus may result from:
Answer an increase in the price of milkshakes.
an increase in the supply of milkshakes.
a decrease in the demand for milkshakes.
a decrease in the supply of milkshakes.

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Question
Along a given demand curve, an increase in the price of a good will:
Answer increase consumer surplus.
decrease consumer surplus.
have no effect on consumer surplus.
decrease producer surplus.

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Question
The total consumer surplus for Good X can be calculated in all except one of the following ways.
Which is the exception?
Answer the sum of the individual consumer surpluses for all buyers of X
the area below the demand curve for X and above the price of X
the area bounded by the demand curve for X and the two axes
the sum, for all buyers of X, of the difference between what each buyer is willing to pay
for X and the amount actually paid

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Question

Reference: Ref 4-1

(Table: Consumer Surplus and Phantom Tickets) Using the information in the table, if the price of a
ticket to see Phantom of the Opera is $50, then Robert's consumer surplus is:
Answer $60.
$50.
$10.
$240.

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Question

Reference: Ref 4-1

(Table: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of
the Opera is $50, and there is no other market for tickets, then total consumer surplus for the five
students is:
Answer $100.
$175.
$230.
$240.

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Reference: Ref 4-1

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(Table: Consumer Surplus and Phantom Tickets) If the box-office price of a ticket to see Phantom of
the Opera is $130, and there is no other market for tickets, the total consumer surplus for the five
students is:
Answer $150.
$125.
$20.
$0.

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Question
Suppose the United States removes the current sugar quotas and the market price of sugar drops. In
the candy bar market, we would expect:
Answer the consumer surplus to increase.
the consumer surplus to decrease.
the consumer surplus to be unchanged.
the deadweight loss to increase.

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Question
Figure: Market for Hamburgers

Reference: Ref 4-2

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the price of a burger is $2, consumer surplus will equal:
Answer $650.
$400.
$225.
$450.

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Figure: Market for Hamburgers

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Reference: Ref 4-2

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the Palace sells 400 burgers, consumer surplus will equal:
Answer $650.
$400.
$225.
$450.

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Question
Figure: Market for Hamburgers

Reference: Ref 4-2

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the Palace lowers the price of a burger from $2 to $1.50, the gain in consumer
surplus to consumers who are persuaded to buy at the lower price (and who were not buying when
the price was $2) is equal to:
Answer $100.
$75.
$50.
$25.

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Question
Figure: Consumer Surplus

Reference: Ref 4-3

(Figure: Consumer Surplus) In the figure, when the price falls from $30 to $25, consumer surplus
________ for a total consumer surplus of ________.
Answer increases by $25; $74
decreases by $15; $34
increases by $15; $64
increases by $5; $54

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Figure: Consumer Surplus

Reference: Ref 4-3

(Figure: Consumer Surplus) In the figure, when the price rises from $30 to $35, consumer surplus
________ for a total consumer surplus of ________.
Answer decreases by $15; $34
increases by $15; $64
increases by $25; $74
decreases by $5; $44

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Figure: Consumer Surplus

Reference: Ref 4-3

(Figure: Consumer Surplus) In the figure, total consumer surplus is ________ when the price is $10.
Answer $50
$59
$124
$144

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Question

Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Lois's
consumer surplus is:
Answer $60.
$50.
$15.
$240.

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Question

Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Narum's
consumer surplus is:
Answer $60.
$50.
$15.
$240.

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Question

Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75, then Lois's
consumer surplus is:
Answer $25.
$60.
$75.
$100.

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Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75, then Miguel's
consumer surplus is:
Answer $60.
$50.
$15.
$240.

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Question

Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50 and there is no
other market for tickets, then total consumer surplus for the five students is:
Answer $105.
$130.
$270.
$320.

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Reference: Ref 4-4

(Table: Consumer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75 and there is no
other market for tickets, the total consumer surplus for the five students is:
Answer $190.
$125.
$40.
$0.

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Question

Reference: Ref 4-4

(Table: Consumer Surplus) If the tickets to The Nutty Nutcracker are free and there is no other market
for tickets, the total consumer surplus for the five students is:
Answer $0.
$100.
$150.
$320.

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Question
Which of the following is true if there is a decrease in the supply of ice cream?
Answer There is an increase in consumer surplus.
There is a decrease in consumer surplus.
There is no change to consumer surplus.
It's impossible to tell what will happen to consumer surplus.

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Question
We can measure total consumer surplus for Good X as:
Answer the sum of the individual consumer surpluses for all buyers of X.
the area above the demand curve for X and below the price of X.
the area bounded by the demand curve for X and the two axes.
the area above the supply curve for X.

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Question
When there is a bountiful harvest of grapefruit, total consumer surplus in the grapefruit market:
Answer will increase.
will decrease.
will remain the same.
may change but we can't tell how.

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Question
Along a given demand curve, a decrease in the price of a good:
Answer will increase consumer surplus.
will decrease consumer surplus.
will have no effect on consumer surplus.
It's impossible to tell what will happen to consumer surplus.

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Question
Figure: Consumer Surplus II

Reference: Ref 4-5

(Figure: Consumer Surplus II) At a price of P , consumer surplus equals the area:
1
Answer ABP2.
AFP1.
AQ30.
P1P2BF.

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Question
Figure: Consumer Surplus II

Reference: Ref 4-5

(Figure: Consumer Surplus II) At a price of P , consumer surplus equals the area:
2
Answer ABP2.
AFP1.
AQ30.
P1P2BF.

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Figure: Consumer Surplus II

Reference: Ref 4-5

(Figure: Consumer Surplus II) If the good is free, consumer surplus equals the area:
Answer ABP2.
AFP1.
BGF.
AQ30.

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Question
Figure: Consumer Surplus II

Reference: Ref 4-5

(Figure: Consumer Surplus II) If the price falls from P to P , consumer surplus increases by the area:
2 1
Answer ABP2.
AFP1.
BGF.
P1P2BF.

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Figure: Consumer Surplus II

Reference: Ref 4-5

(Figure: Consumer Surplus II) If the price rises from P to P , consumer surplus decreases by the
1 2
area:
Answer ABP2.
AFP1.
BGF.
P1P2BF.

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Question
Figure: Consumer Surplus III

Reference: Ref 4-6

(Figure: Consumer Surplus III) If the price of the good is $2, consumer surplus will equal:
Answer $30.
$45.
$60.
$90.

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Figure: Consumer Surplus III

Reference: Ref 4-6

(Figure: Consumer Surplus III) If the price of the good is $4, consumer surplus will equal:
Answer $5.
$10.
$20.
$40.

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Question
Figure: Consumer Surplus III

Reference: Ref 4-6

(Figure: Consumer Surplus III) If the price of the good increases from $3 to $4, consumer surplus will
decrease by:
Answer $5.
$10.
$15.
$20.

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Figure: Consumer Surplus III

Reference: Ref 4-6

(Figure: Consumer Surplus III) If the price of the good decreases from $2 to $1, consumer surplus will
increase by:
Answer $5.
$10.
$25.
$35.

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Question
Consumer surplus for an individual buyer is equal to:
Answer the consumer's willingness to pay for the good, minus the marginal cost of producing the
good.
the price of the good, minus the marginal cost of producing the good.
the consumer's willingness to pay for the good, minus the price of the good.
the marginal cost of the good, minus the consumer's willingness to pay for the good.

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Consumer surplus can be found by computing the area:
Answer above the supply curve and below the price.
under the supply curve and above the price.
under the demand curve and above the price.
under the demand curve and below the price.

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Reference: Ref 4-7

(Table: Music Downloads) Two consumers, Eli and Madison, like to download songs to their MP3
players. The table represents their willingness to pay for each downloaded song. If an individual song
can be downloaded at a price of $1, what is the total consumer surplus received by these
consumers?
Answer $19.25
$18
$10
$11

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Reference: Ref 4-8

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(Table: Economics Textbooks) The table shows how much money four consumers would be willing to
pay for a new economics textbook. The price of the textbook is $100. How much total consumer
surplus would be earned by these consumers?
Answer $125
$500
$100
$75

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Question
Figure: Monthly Demand for Ice Cream Cones

Reference: Ref 4-9

(Figure: Monthly Demand for Ice Cream Cones) The graph represents one individual's monthly
demand for ice cream cones. At a price of $5 per cone, this individual will consume 10 cones in a
month. How much consumer surplus does this consumer receive?
Answer $100
$50
$150
$500

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Question
Ashley bought a new pair of jeans. When she walked out of the store, she thought, “I got such a great
deal; I would have paid $40 more for these jeans!” This best represents the concept of:
Answer consumer surplus.
producer surplus.
total surplus.
equilibrium.

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Question
Along a given demand curve, an increase in the price of a good will cause consumer surplus to:
Answer increase.
decrease.
not change.
Cannot be determined without information about the supply curve.

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Which situation would most likely cause a decrease in consumer surplus in the toy market?
Answer The cost of shipping increases due to higher oil prices.
Consumer income increases.
There is an unexpected baby boom.
A new assembly line design increases worker productivity.

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Question
Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to
pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the
bookstore is $65. How much is total consumer surplus?
Answer $10
$35
$45
$60

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Question
Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is willing to
pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The price for a calculator at the
bookstore is $65. How much is Mark's individual consumer surplus?
Answer $10
$25
$35
$75

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Question
Vonda and Aleiyah are shopping together at the mall for new jeans. Vonda is willing to pay $90 and
Aleiyah is willing to pay $50 for a pair of jeans. If the price of jeans is $59, how much total consumer
surplus is achieved in this market?
Answer $0
$9
$31
$40

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Question
Vonda and Aleiyah are shopping together at the mall for new jeans. Vonda is willing to pay $90 and
Aleiyah is willing to pay $50 for a pair of jeans. What is the gain in total consumer surplus when the
price decreases from $59 to $40?
Answer $10
$29
$31
$60

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Question
Consumer surplus is represented by the area ________ the demand curve and ________ the price.
Answer above; below
above; above
below; above
below; below

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Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and
$30 for the fourth. If shoes cost $50, Jeanette will buy ________ pairs of shoes and her total
consumer surplus equals ________.
Answer 4; $110
3; $230
3; $80
4; $80

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Question
Adie wants to take some online classes this semester. She is willing to pay $1,000 for the first class,
$800 for the second, $700 for the third, and $500 for the fourth. If online classes cost $750, Adie will
take ________ online classes and her consumer surplus will equal ________.
Answer 3; $350
4; $600
2; $400
2; $300

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Figure: Wireless Mouse Market

Reference: Ref 4-10

(Figure: Wireless Mouse Market) Use the graph to calculate consumer surplus when the market is at
equilibrium.
Answer $4,000
$5,000
$2,500

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$3,000

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Figure: Market Demand

Reference: Ref 4-11

(Figure: Market Demand) The amount by which the total benefits to consumers exceeds their total
expenditure is called ________ and is depicted at quantity E by the area ________.
Answer producer surplus; BCD
consumer surplus; OCDE
consumer surplus; BCD
net benefit; OBDE

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Anna is willing to sell her 20-year-old boat, but not for less than $2,300. For Anna, the cost of selling
this boat is ________ $2,300.
Answer more than
less than
equal to
There is not enough information to answer the question.

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Along a given supply curve, an increase in the price of a good will:
Answer increase producer surplus.
decrease producer surplus.
increase consumer surplus.
decrease producer surplus and increase consumer surplus.

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Reference: Ref 4-12

(Table: Producer Surplus and Phantom Tickets) Given the information in the table, if the price for
Phantom tickets is $55, which student has the highest individual producer surplus?
Answer Tim
Laura
Rick
Ralph

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Reference: Ref 4-12

(Table: Producer Surplus and Phantom Tickets) Given the information in the table, if the price for
Phantom tickets is $140, and there is no other market for tickets, total producer surplus for these five
students is:
Answer $139.
$110.
$40.
$379.

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Reference: Ref 4-12

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(Table: Producer Surplus and Phantom Tickets) Given the information in the table, if the price for
Phantom tickets is $55, total producer surplus for the five students is:
Answer $54.
$79.
$84.
$64.

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Reference: Ref 4-12

(Table: Producer Surplus and Phantom Tickets) Given the information in the table, if these students
can sell their Phantom tickets for only $5, then:
Answer Tim will be the only student not to sell his ticket.
Laura, Whitney, Ralph, and Rick will sell their tickets.
the total producer surplus for the five students will be $4.
the total producer surplus for the five students will be $330.

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Which of the following is true if there is a decrease in the demand for cupcakes?
Answer There is an increase in producer surplus.
There is an increase in consumer surplus.
There is an increase in total surplus.
There is a decrease in producer surplus.

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Along the supply curve for brownies, a decrease in the price of brownies will:
Answer increase producer surplus.
decrease producer surplus.
increase consumer surplus.
increase producer surplus and consumer surplus.

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The total producer surplus in the Wisconsin milk market represents:
Answer the sum of the individual producer surpluses in this market.
the sum of all prices paid multiplied by the number of gallons of milk sold.

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the total revenue of the milk producers in Wisconsin.

the total cost of selling milk in Wisconsin.

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The total producer surplus for a good can be calculated in all except one of the following ways. Which
is the exception?
Answer the sum of the individual producer surpluses for all sellers of the good
the area below the supply curve for the good up to the quantity of the good sold
the area above the supply curve and below the price at which the good is being sold
the sum, for all sellers of the good, of the difference between what each seller receives
and the minimum amount he or she is willing to accept for selling the good

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Peanut butter and jelly are complements. If there is a decrease in the price of jelly, producer surplus
in the peanut butter market:
Answer will increase.
will decrease.
will not change.
may change, but it is impossible to tell if it will increase or decrease.

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Equilibrium in the market for peanut butter is disturbed by an increase in the price of peanuts.
Producer surplus in the peanut butter market:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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Figure: Market for Hamburgers

Reference: Ref 4-13

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(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the price of a hamburger is $1.20 and 300 hamburgers are supplied, producer
surplus will equal:
Answer $60.
$65.
$135.
$360.

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Figure: Market for Hamburgers

Reference: Ref 4-13

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the Palace sells 400 hamburgers, producer surplus will equal:
Answer $650.
$400.
$510.
$240.

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Figure: Market for Hamburgers

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Reference: Ref 4-13

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. If the price of burgers falls from $1.50 to $1.20, there is a loss in producer surplus.
How much of the loss accrues because the Palace chooses to reduce the quantity supplied?
Answer $15
$45
$75
$90

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Figure: Producer Surplus

Reference: Ref 4-14

(Figure: Producer Surplus) When the price falls from $45 to $35, producer surplus ________ for a
total producer surplus of ________.
Answer increases by $10; $140
decreases by $40; $60
increases by $35; $180
decreases by $10; $140

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Figure: Producer Surplus

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Reference: Ref 4-14

(Figure: Producer Surplus) When the price rises from $25 to $35, producer surplus ________ for a
total producer surplus of ________.
Answer increases by $10; $30
decreases by $10; $30
increases by $30; $60
decreases by $35; $100

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Figure: Producer Surplus

Reference: Ref 4-14

(Figure: Producer Surplus) Total producer surplus is ________ when the price is $40.
Answer $40
$60
$80
$85

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Question

Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Francisco's
producer surplus is:
Answer $0.
$40.
$90.
$240.

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Question

Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50, then Dudley's
producer surplus is:
Answer $0.
$25.
$60.
$240.

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Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75, then Caitlin's
producer surplus is:
Answer $0.
$74.
$75.
$100.

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Question

Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75, then Dudley's
producer surplus is:
Answer $15.
$25.
$50.
$240.

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Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $50 and there is no
other market for tickets, then total producer surplus for the five students is:
Answer $50.
$74.
$100.
$276.

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Question

Reference: Ref 4-15

(Table: Producer Surplus) If the price of a ticket to see The Nutty Nutcracker is $75 and there is no
other market for tickets, the total producer surplus for the five students is:
Answer $190.
$139.
$75.
$40.

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Reference: Ref 4-15

(Table: Producer Surplus) If the tickets to The Nutty Nutcracker are free and there is no other market
for tickets, the total producer surplus for the five students is:
Answer $276.
$100.
$74.
$0.

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Which of the following is true if there is a decrease in the demand for ice cream?
Answer There is an increase in producer surplus.
There is a decrease in producer surplus.
There is no change in producer surplus.
It's impossible to tell what will happen to producer surplus.

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When there is a new medical report extolling the health advantages of grapefruit, total producer
surplus in the grapefruit market:
Answer will increase.
will decrease.
will remain the same.
may change but we can't tell how.

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Along a given supply curve, a decrease in the price of a good will:
Answer increase producer surplus.
decrease producer surplus.
have no effect on producer surplus.
It's impossible to tell what will happen to producer surplus.

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Question
If the price of a good rises, then producer surplus:
Answer will increase.
will decrease.
will remain the same.
may change but we can't tell how.

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We can measure total producer surplus for Good X as:
Answer the sum of the individual producer surpluses for all buyers of X.
the area below the supply curve for X and above the price of X.
the area bounded by the supply curve for X and the two axes.
the area between the demand curve for X and the supply curve for X.

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Figure: Producer Surplus II

Reference: Ref 4-16

(Figure: Producer Surplus II) At a price of P , producer surplus equals the area:
1
Answer LMK.
P1K0.
P2M0.
P2P1KM.

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Figure: Producer Surplus II

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Reference: Ref 4-16

(Figure: Producer Surplus II) At a price of P , producer surplus equals the area:
2
Answer LMK.
P1K0.
P2M0.
P2P1KM.

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Figure: Producer Surplus II

Reference: Ref 4-16

(Figure: Producer Surplus II) If the price falls from P to P , producer surplus decreases by the area:
2 1
Answer LMK.
P1K0.
P2M0.
P2P1KM.

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Figure: Producer Surplus II

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Reference: Ref 4-16

(Figure: Producer Surplus II) If the price rises from P to P , producer surplus increases by the area:
1 2
Answer LMK.
P1K0.
P2M0.
P2P1KM.

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Figure: Producer Surplus III

Reference: Ref 4-17

(Figure: Producer Surplus III) If the price of the good is $2, producer surplus will equal:
Answer $20.
$40.
$60.
$80.

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Figure: Producer Surplus III

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Reference: Ref 4-17

(Figure: Producer Surplus III) If the price of the good is $4, producer surplus will equal:
Answer $20.
$40.
$60.
$80.

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Figure: Producer Surplus III

Reference: Ref 4-17

(Figure: Producer Surplus III) If the price of the good increases from $3 to $4, producer surplus will
increase by:
Answer $5.
$15.
$25.
$35.

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Figure: Producer Surplus III

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Reference: Ref 4-17

(Figure: Producer Surplus III) If the price of the good decreases from $2 to $1, producer surplus will
decrease by:
Answer $5.
$15.
$25.
$35.

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Figure: Monthly Supply of Bread

Reference: Ref 4-18

(Figure: Monthly Supply of Bread) The graph represents the monthly supply of bread at a local
bakery. At the current price of $3 per loaf of bread, the bakery produces 120 loaves of bread per
month. The producer surplus received by this bakery is equal to:
Answer $120.
$60.
$360.
$180.

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Producer surplus for an individual seller is equal to:
Answer the price of the good, minus the marginal cost of producing the good.
the marginal cost of the good, minus the willingness to pay for the good.

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the willingness to pay for the good, minus the price of the good.
the marginal cost of the good, minus the price of the good.

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Maria wants to get rid of her bookshelf. She is willing to give it away for free but her neighbor offers to
pay $30 for it. Maria experiences a:
Answer gain of consumer surplus.
loss of consumer surplus.
gain of producer surplus.
loss of producer surplus.

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Along a given supply curve, a decrease in price will cause producer surplus to:
Answer increase.
decrease.
stay the same.
We cannot determine what producer surplus will do without information about the
demand curve.

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Question
If the cost to download a song from the Internet falls from $0.99 to $0.50, then we would predict that
producer surplus would ________ in the market for MP3 players.
Answer increase
decrease
not change
We cannot determine what producer surplus will do without information about
consumer surplus

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Producer surplus is represented by the area ________ the supply curve and ________ the price.
Answer above; above
above; below
below; above
below; below

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Question
Mountain River Adventures offers white water rafting trips down the Colorado River. It costs the firm
$100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If
the market price for a raft trip is $150, Mountain River Adventures will offer ________ trips per day
and will have producer surplus equal to ________.
Answer 3; $90
3; $10
2; $220

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4; $80

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Question
Mountain River Adventures offers white water rafting trips down the Colorado River. It costs the firm
$100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If
the market price for a raft trip was $120 but has now increased to $150, the gain in producer surplus
is equal to:
Answer $20.
$70.
$80.
$90.

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Luis is willing to sell his pool table for $600, but he has paid $840 for the table. The producer surplus
Luis receives is ________.
Answer $600
$840
$240
$1,440

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Figure: Gain in Producer Surplus

Reference: Ref 4-19

(Figure: Gain in Producer Surplus) Which of the following area(s) represent producer surplus when
the price is equal to P ?
2
Answer D, E, and F
B and C
D and E
A, B, and C

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Figure: Producer Surplus and Supply

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Reference: Ref 4-20

(Figure: Producer Surplus and Supply) The difference between the total revenue received by sellers
and their total cost is called ________ surplus, and for output level E is depicted by the area enclosed
in ________.
Answer consumer; ABD
producer; OBDE
net; OADE
producer; ABD

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The number of seats in a football stadium is fixed at 70,000. The team raises the price of a ticket from
$30 to $40, and it still sells 70,000 tickets. The price change caused a change in the consumer
surplus of ________ and a change in the producer surplus of ________.
Answer –$10; $10
–$700,000; $700,000
$0; $0
$40; 40

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If the government were to intervene in the market by lowering the price below the equilibrium price on
a good, then which of the following will not occur?
Answer Consumers would be happy.
Producers would likely not be pleased.
The outcome would be efficient.
Total surplus would be lower.

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The total surplus generated in a market is:
Answer the excess supply due to the imposition of a price floor.
the surplus that exists when a good is not scarce, defined as the total amount (if any) by
which quantity supplied exceeds quantity demanded at a zero price.
the net benefit to consumers, defined as the excess of consumer surplus over producer
surplus.
the sum of consumer surplus and producer surplus.

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Alex is willing to buy the last ticket to the Billy Bragg concert for $15, while Jake is willing to pay $25.
Alex is first in line and buys a ticket for $15. He then resells his ticket to Jake for $20. By reselling the
ticket instead of going to the concert himself, Alex caused:
Answer the sum of the consumer and producer surplus to increase.
the sum of the consumer and producer surplus to decrease.
a deadweight loss of $5.
consumer surplus to decrease and producer surplus to increase.

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Question
Peanut butter is an inferior good. If there is an increase in income, total surplus in the peanut butter
market:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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If more agricultural land is devoted to producing peanuts, total surplus in the peanut butter market:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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Question
Figure: Market for Hamburgers

Reference: Ref 4-13

(Figure: Market for Hamburgers) The figure shows the weekly market for hamburgers at the Tasty
Burger Palace. The maximum total surplus for the market for the Palace burgers is ________ and it
occurs at a price equal to ________.

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Answer $550; $1.50

$640; $1.50
$1,050; $2
Not enough information is provided to answer this question, since the maximum total
surplus could occur at a price that is not marked in the figure.

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Question
Suppose apartments rent for $1,600 in Boston. If the city of Boston forces each landlord to charge
$1,200, there will be:
Answer an increase in producer surplus for each landlord.
a surplus of new apartments in Boston.
an increase in consumer surplus for Bostonians who can find apartments for $1,200.
an increase in total surplus.

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Question
Suppose you pay $8 to see Tom Cruise in his next movie. Suppose Mr. Cruise receives $21 million to
work in this movie. This means that:
Answer you would have been better off being more self-reliant in the movie market.
Tom Cruise received a producer surplus of $21 million.
you received a consumer surplus of $8.
you and Tom Cruise benefited from this transaction.

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All of the following are possible reasons for the existence of market failure, except:
Answer the presence of monopoly firms.
the existence of externalities.
the existence of public goods.
the existence of extremely high prices for medical care.

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Which of the following is true when a market is in equilibrium and there is no government
intervention?
Answer Total surplus is minimized.
The deadweight loss is maximized.
No mutually beneficial trades are missed.
Some mutually beneficial trades may be missed.

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Figure: Consumer and Producer Surplus

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Reference: Ref 4-22

(Figure: Consumer and Producer Surplus) In the figure, if an effective price floor exists in this market,
then consumer surplus ________ and total surplus ________.
Answer increases; decreases
decreases; stays the same
increases; stays the same
decreases; decreases

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Figure: Consumer and Producer Surplus

Reference: Ref 4-22

(Figure: Consumer and Producer Surplus) In the figure, if an effective price ceiling exists in this
market, then producer surplus ________ and total surplus ________.
Answer decreases; decreases
increases; stays the same
decreases; stays the same
increases; decreases

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Figure: Consumer and Producer Surplus

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Reference: Ref 4-22

(Figure: Consumer and Producer Surplus) In the accompanying figure, an increase in supply will:
Answer increase consumer surplus.
always decrease producer surplus.
increase total surplus.
increase consumer surplus and total surplus.

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Total surplus is:
Answer the sum of consumer and producer surplus.
measured as the area between the supply and demand curves from their beginnings to
their ends.
the total net gain to consumers from trading in the market.
the total net gain to producers from trading in the market.

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If there is an increase in demand, total surplus:
Answer will increase.
will decrease.
will remain the same.
may change, but we can't tell how.

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If there is an increase in supply, total surplus:
Answer will increase.
will decrease.
will remain the same.
may change, but we can't tell how.

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Question
If there is a decrease in demand, total surplus:
Answer will increase.
will decrease.
will remain the same.
may change, but we can't tell how.

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If there is a decrease in supply, total surplus:
Answer will increase.
will decrease.
will remain the same.
may change, but we can't tell how.

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If total surplus falls, which of the following must have occurred?
Answer There was an increase in demand or a decrease in supply.
There was an increase in demand and an increase in supply.
There was a decrease in demand or a decrease in supply.
There was a decrease in demand and an increase in supply.

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If total surplus rises, which of the following must have occurred?
Answer There was an increase in demand and a decrease in supply.
There was an increase in demand or an increase in supply.
There was a decrease in demand and a decrease in supply.
There was a decrease in demand or an increase in supply.

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Figure: Gains from Trade

Reference: Ref 4-23

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(Figure: Gains from Trade) What is the total surplus in this market when the demand curve is D ?
1
Answer $25
$31.25
$62.50
$90

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Figure: Gains from Trade

Reference: Ref 4-23

(Figure: Gains from Trade) What is the total surplus in this market when the demand curve is D ?
2
Answer $31.25
$45
$62.50
$90

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Figure: Gains from Trade

Reference: Ref 4-23

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(Figure: Gains from Trade) As demand increases from D to D , total surplus:

1 2
Answer decreases by $10.
increases by $12.75.
decreases by $15.
increases by $27.50.

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If the market for grapefruit is in equilibrium without any government intervention:
Answer total surplus is minimized.
there is some deadweight loss.
a few mutually beneficial trades are missed.
consumer and producer surplus are maximized.

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Question
Coffee and tea are substitutes. If there is an increase in the price of coffee, total surplus in the tea
market:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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If a frost destroys much of the grapefruit crop, total surplus:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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If the government imposes a price floor in the market for grapefruit, total surplus:
Answer will increase.
will decrease.
will not change.
may change, but we cannot determine the change without more information.

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If the government imposes a price ceiling in the market for grapefruit, total surplus:
Answer will increase.
will decrease.
will not change.

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may change, but we cannot determine the change without more information.

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Question
Suppose a competitive market has a downward-sloping demand curve and a perfectly elastic supply
curve. If the supply curve shifts downward, what will happen to equilibrium price, equilibrium quantity,
consumer surplus, and producer surplus?
Answer decrease, increase, increase, decrease
decrease, decrease, increase, no change
decrease, increase, increase, no change
decrease, increase, no change, increase

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Question
All else equal, if a price floor is imposed on a market that has reached a competitive equilibrium price,
what will happen to consumer and producer surplus?
Answer Consumer surplus will fall and producer surplus will rise.
Consumer surplus will fall and producer surplus will fall.
Consumer surplus will rise and producer surplus will fall.
Consumer surplus will rise and producer surplus will rise.

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Question
A competitive market for gadgets is currently in equilibrium. Now the government imposes a price
ceiling in the gadget market. Which of the following is most likely to happen to consumer surplus and
to producer surplus?
Answer Consumer surplus will fall and producer surplus will rise.
Consumer surplus will rise and producer surplus will fall.
Both consumer and producer surplus will fall.
There will be no change to either consumer or producer surplus.

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Figure: Market for Sandwiches

Reference: Ref 4-24

(Figure: Market for Sandwiches) The market for sandwiches during the lunch hour at a local deli is
illustrated in the graph. At the competitive price of $5, 10 sandwiches are exchanged during the lunch
hour. At this competitive price, consumer surplus equals ________ and producer surplus equals

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________.
Answer $50; $50
$100; $50
$50; $25
$100; $25

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Figure: Market for Sandwiches

Reference: Ref 4-24

(Figure: Market for Sandwiches) Referring again to the market for sandwiches during the lunch hour
at a local deli, how much total surplus would be lost if a quota dictated that only eight sandwiches
could be legally exchanged at a price of $5?
Answer $3
$72
$27
$32

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Figure: Market for Sandwiches

Reference: Ref 4-24

(Figure: Market for Sandwiches) Referring again to the market for sandwiches during the lunch hour
at a local deli, suppose a price floor is set at $7. At this price, consumer surplus is equal to ________
and producer surplus is equal to ________.
Answer $64; $40
$64; $24
$32; $24

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$32; $40

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Which of the following is most likely to increase consumer surplus in the market for cotton T-shirts?
Answer Weather conditions provide for an extremely productive cotton harvest.
Consumer incomes fall and cotton T-shirts are normal goods.
The price of polyester T-shirts falls.
The price of industrial sewing machines used to produce garments increases.

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Question
In the market for corn, total surplus ________ when the price of ethanol increases.
Answer increases
decreases
does not change
The answer cannot be determined without information about the supply curve.

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Question
When a market is efficient, then:
Answer there is no way to make some people better off without making other people worse off.
consumers who value buying a good the least are the ones who are able to purchase the
good.
producers whose willingness to accept a price is greater than the market price are able to
sell their good.
there are ways to make everyone better off.

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Total surplus is:
Answer the difference between price and the cost to the seller.
the summation of consumer and producer surplus.
equal to the area below the demand curve.
determined by the costs for each producer and the benefits for each consumer.

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Question
Maximum total surplus in the market for chocolate occurs when:
Answer total net gain to producers is generated from trading in the market.
all consumers who value chocolate are able to buy chocolate.
all producers are able to sell their chocolate.
the market is in equilibrium.

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Question
Figure: Gain in Consumer Surplus

Reference: Ref 4-25

(Figure: Gain in Consumer Surplus) Identify the area(s) that represent the gain in consumer surplus to
those consumers already participating in the market when the price falls from P to P . Which of the
1 2
following is correct?
Answer A and B
B
B and C
C

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Figure: Gain in Consumer Surplus

Reference: Ref 4-25

(Figure: Gain in Consumer Surplus) Identify the area(s) that represent the change in consumer
surplus when the price falls from P to P . Which of the following is correct?
1 2
Answer A and B
B and C
D and E
A, B, and C

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Question
Figure: Wireless Mouse Market

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Reference: Ref 4-10

(Figure: Wireless Mouse Market) Using the graph showing the wireless mouse market, calculate
producer surplus when the market is in equilibrium.
Answer $4,000
$1,300
$2,500
$3,000

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Figure: Wireless Mouse Market

Reference: Ref 4-10

(Figure: Wireless Mouse Market) Using the graph showing the wireless mouse market, calculate the
change in producer surplus when the price increases from $10 to $15.
Answer $250
$1,000
$750
$3,000

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Question
Figure: Change in Total Surplus

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Reference: Ref 4-27

(Figure: Change in Total Surplus) Which of the following area(s) represent the change in total surplus
when the price falls from P to P ?
1 2
Answer A, B, and C
B and C
B, C, D, and E
C and E

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Figure: Change in Total Surplus

Reference: Ref 4-27

(Figure: Change in Total Surplus) Which of the following area(s) represent the change in total surplus
when the price falls from P to P ?
2 3
Answer A, B, and C
B and C
B, C, D, and E
C and E

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Figure: Market I

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Reference: Ref 4-28

(Figure: Market I) If the government decides to restrict the quantity that is sold to 100, which of the
following is not a true statement?
Answer Total surplus will fall by areas C and E.
The market is not at equilibrium.
Consumer surplus is maximized.
Mutually beneficial transactions have been missed.

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Which of the following is a key factor in the effectiveness of well-functioning markets?
Answer Outcomes which are equitable for consumers and producers
The role of government to deliver economic signals to consumers and producers
A significant degree of government intervention to maximize efficiency
Your right to use and dispose of your private property as you see fit

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Market failure refers to a situation in which:
Answer markets fail to reach a fair outcome.
markets establish a high price for necessities.
market-determined wages are not high enough to raise all workers above the poverty
line.
markets fail to reach an efficient outcome.

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Question
A consumer's willingness to pay for a surfboard is the minimum price at which he or she would buy
the surfboard.
Answer True
False

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Question
Gehrig is willing to pay $90 for a cap made of raccoon skin. Suppose he finds such a cap for $71 on
eBay. If Gehrig buys the cap, he will have an individual consumer surplus of $71.

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Answer True
False

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Question
Consumer surplus is the amount buyers actually pay for a good minus the maximum amount they are
willing to pay for it.
Answer True
False

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Question
Price floors on agricultural products like milk exist to maximize the consumer surplus.
Answer True
False

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Question
One way to measure the gain to society from a potential drug that will reduce obesity is to measure
what people would be willing to pay for the good and subtract the amount they would have to pay.
Answer True
False

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Question
Floyd's cost of selling haircuts is the lowest price at which he is willing to sell haircuts.
Answer True
False

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Question
When calculating producer surplus it is important to distinguish between the minimum price at which a
seller is willing to sell a good and the seller's cost.
Answer True
False

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True/False 0 points

Question
Producer surplus is the amount sellers receive from the sale of a good minus the minimum amount
they are willing to accept for supplying the good.
Answer True
False

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Question
All else equal, when the supply curve shifts left, the producer surplus increases.
Answer True
False

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True/False 0 points

Question
If the price of gasoline rises, the producer surplus of auto manufacturers decreases.
Answer True
False

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A binding price ceiling will cause a reduction in total surplus.
Answer True
False

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Question
The total surplus generated in the market for blackberries is the total net gain to consumers in that
market.
Answer True
False

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Efficiency exists when there is no way to make someone better off without making someone else
worse off.
Answer True
False

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If the price of oil increased due to a decreased supply of oil, both the consumer surplus and the
producer surplus would increase.
Answer True
False

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If the cost of soybeans (the major ingredient in tofu) decreases, consumer surplus in the market for
tofu will decrease.
Answer True
False

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Reference: Ref 4-29

(Table: Workouts) Several times each week Eli works out at a local health club, but because he is not
a member, he pays a price of $10 each time he shows up to use the club facilities. The table shows
Eli's willingness to pay for each use of the club. How many times will Eli use the health club for a
workout, and how much consumer surplus does he receive?
Answer He will use the health club six times and receive consumer surplus equal to: $25 + 20 +
15 + 10 + 5 + 0 = $75.
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Reference: Ref 4-29

(Table: Workouts) Refer again to the table. Suppose that Eli receives an offer from the club that
describes a weekly membership fee of $50 that allows him to use the club as much as he wants. How
many times will Eli use the club and how much consumer surplus will he receive?
Answer If he pays the $50 membership fee, each workout can be consumed at no additional charge.
In that case, he will work out seven times per week and his willingness to pay is $140, minus
the weekly membership fee of $50, which results in a consumer surplus of $90.
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Figure: Demand for Cincinnati Reds Games Tickets

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Reference: Ref 4-30

(Figure: Demand for Cincinnati Reds Games) The graph represents Jeff's annual demand for tickets
to Cincinnati Reds baseball games. At the current price of $20, Jeff will purchase 5 tickets. How much
consumer surplus does Jeff receive?
Answer The area of the triangle above $20 and under the demand curve is = 1/2*($60)*(5) =
$150.
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Figure: Demand for Cincinnati Reds Games Tickets

Reference: Ref 4-30

(Figure: Demand for Cincinnati Reds Games) Consider again the demand curve that represented
Jeff's demand for Reds baseball tickets. Suppose the Reds required all fans to purchase a parking
pass for each game, at a price of $12. This effectively raises the price of a ticket to $32 and Jeff will
decrease his quantity demanded for Reds baseball by one ticket this year. How much consumer
surplus has Jeff lost?
Answer The smaller area under the demand curve and above a price of $32 amounts to $96 of
consumer surplus. Therefore, Jeff has lost $54.
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Reference: Ref 4-31

(Table: Coffee Shops) There are three coffee shops in a small town. Each can supply cups of coffee,
but at slightly different marginal costs. These marginal cost schedules are shown in the table above.
Use the table to construct the supply schedule for coffee at prices of $0, $1, $2, and $3.
Answer To construct the supply schedule, we must determine how many cups each firm would
supply at each price, then add those numbers of individual cups to get the total quantity
supplied for the town. The table below shows how the supply schedule is constructed.

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Reference: Ref 4-31

(Table: Coffee Shops) Refer again to the table of costs for our three small-town coffee shops. If the
price of coffee is $1.75, how many cups will be supplied and how much producer surplus will be
earned by coffee shops in the town?
Answer The Buzz will supply 5 cups and earn a total of $4.75 in producer surplus. Jo' Mama will
supply three cups and earn a total of $2 of producer surplus. Trembles will supply only two
cups and earn $1.10 in producer surplus. Total number of cups supplied in the town at a
price of $1.75 is 10, and total producer surplus is $7.85.
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Question

Reference: Ref 4-31

(Table: Coffee Shops) Refer again to the table of costs for our three small-town coffee shops. If the
price of coffee is $1.75, show how total producer surplus decreases at any number of cups that differs
from the equilibrium number found in the previous question.
Answer If the price is $1.75, you found that 10 total cups are produced and total producer surplus is
$7.85. Suppose that, rather than 5 cups at $1.75, The Buzz produced one additional cup.
The cost of producing the sixth cup is $2.00, so The Buzz is losing $.25 of producer surplus.
This $.25 loss reduces total producer surplus to $7.60. In other words, “too many” cups have
been produced. Or suppose that The Buzz produced only 4 cups at $1.75. By not producing
the fifth cup, The Buzz has passed up on $.25 of additional producer surplus that could have
been earned. This decision also drops total producer surplus from $7.85 to $7.60. In other
words, “too few” cups have been produced.
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Molly must drive across a bridge over a river eight times each week. Because the bridge is narrow
and traffic is congested, Molly's willingness to pay for the eighth and final weekly trip is $.50. Now the
governor has promised to refurbish this old bridge and widen it to lessen the congestion and increase
traffic flow over the river. Molly figures that after this project, she would take 10 trips over the bridge
each week and her willingness to pay for the tenth and final trip would fall to $.30. Assuming that
taxes will rise to pay for this project, how much in additional taxes would Molly be willing to pay?
Answer Molly gains $.20 of consumer surplus for the eight trips she already takes, so her consumer
surplus initially increases by $1.60. But she now takes two additional trips at the lower price
(due to convenience) so this increases her consumer surplus by 1/2*($.20)(2 trips) = $.20.
Because Molly's consumer surplus would increase by $1.80, this is the most she would be
willing to pay in additional taxes to pay for the project.
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Figure: Market for Books

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Reference: Ref 4-32

(Figure: Market for Books) At the equilibrium price of $24, find the total surplus in the market for
books.
Answer Total surplus is the sum of consumer and producer surplus. Consumer surplus is the triangle
1/2*($16)*(48 units) = $384. Producer surplus is the triangle 1/2*($18)*(48 units) = $432.
Total surplus is therefore $384 + $432 = $816.
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Figure: Market for Books

Reference: Ref 4-32

(Figure: Market for Books) The figure depicts the market for books. The government now has
imposed a price ceiling at $18. Do consumers gain or lose from this price control and by how much?
Do producers gain or lose from this price control and by how much? How is total surplus affected?
Answer The first thing to notice is that only 32 units will be produced at a price of $18. Producers
lose. The triangle below $18 and above the supply curve is much smaller. Producer surplus
= 1/2*(12)*(32 units) = $192. Consumer surplus = 1/2*($12)*(32 units) + ($10)*(32 units) =
$412, which is more than it was before the price control. Total surplus is $192 + $412 =
$604, which is $212 lower than before the price control. The change in consumer surplus is
$412 – $384 = +$28. The change in producer surplus is $192 – $432 = –$240. The point is
that consumers gain, and producers lose, but the producer loses more than the consumer
gains and thus society suffers a net loss of welfare.
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Reference: Ref 4-33

(Table: Willingness to Pay for Peanuts) If the price of a bag of peanuts is $4, what is the value of
George's consumer surplus?

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Answer $4
$3
$6
$10

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Reference: Ref 4-33

(Table: Willingness to Pay for Peanuts) If the price of a bag of peanuts is $6, what is the total value of
consumer surplus?
Answer $4
$3
$6
$10

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Reference: Ref 4-33

(Table: Willingness to Pay for Peanuts) If the price of a bag of peanuts is $9, who will purchase a
bag?
Answer George
All of the consumers
Dave
Alvin and Theodore

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Reference: Ref 4-33

(Table: Willingness to Pay for Peanuts) If the price of a bag of peanuts is $3, the total value of
consumer surplus would be equal to:
Answer $12.
$26.
$10.
$21.

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Reference: Ref 4-33

(Table: Willingness to Pay for Peanuts) If the price of a bag of peanuts is $2, this would mean that:
Answer every one of the consumers would purchase a bag.
everyone except Dave would purchase a bag.
everyone except George would purchase a bag.
no one would purchase a bag.

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Question
Suppose the market demand for Good Y is given by the equation Qd = 100 – 2P, where P is the price
per unit and Qd represents the number of units. If the market price of Good Y is $40, then the quantity
demanded would equal ________ and the value of consumer surplus will be ________.
Answer 20 units; $100
100 units; $20
40 units; $200
2 units; $40

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Suppose the market demand curve for Good Y is given by the equation Qd = 100 – 2P, where P is the
price per unit and Qd represents the number of units demanded. If the market price of Good Y is $10,

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then the quantity demanded would equal ________ and the value of consumer surplus will be
________.
Answer 20 units; $100
80 units; $200
80 units; $1,600
20 units; $1,600

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Christine has a linear demand curve for candy. If she wishes to see her consumer surplus ________,
she should wish for a ________ in the market price of candy.
Answer increase; decrease
increase; increase
decrease; decrease
not change; decrease

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Along a straight line demand curve, a decrease in the market price of a good:
Answer will cause no change in the value of consumer surplus.
will result in an increase in the value of consumer surplus.
will result in a decrease in the value of consumer surplus.
may lead to a decrease or increase in the value of consumer surplus.

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The following table explains the relationship between the number of reports a firm is willing to produce
and the lowest price it would be willing to accept to prepare the respective number of reports.

If the price of a report is $11, what is the value of producer surplus for this firm?
Answer $11
$17
$27
$40

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Reference: Ref 4-34

(Table: Firm's Willingness) If the price of a report is $12, what is the value of producer surplus for the
firm?
Answer $27
$21
$16
$42

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Reference: Ref 4-34

(Table: Firm's Willingness) If the price of a report is $6, how many reports will be produced?
Answer 5
4
3
2

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Reference: Ref 4-34

(Table: Firm's Willingness) Which of the following market prices would result in 4 reports being
produced?
Answer $2
$6
$8
$11

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Reference: Ref 4-34

(Table: Firm's Willingness) If the price of reports is $15, the firm will find that:
Answer it could experience an increase in its producer surplus if the price rose.
it is experiencing its highest value of producer surplus.
it is experiencing its lowest value of producer surplus.
it would experience its highest value of producer surplus if the price fell by $4.

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Well-functioning markets allow:
Answer mutually beneficial trades to take place.
consumers to gain at the expense of producers.
producers to reap greater benefits since they have greater power in the market.

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property rights to be unnecessary components of effective distribution.

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A situation in which purchases do not occur because the value the potential seller places on the good
exceeds the value a potential consumer places on the good will occur in:
Answer a market dominated by government regulation.
well-functioning markets.
a market made up of many buyers and sellers.
a centralized market system.

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Well-defined property rights:
Answer can allow for mutually beneficial trades.
will result in government regulation.
often result in more market failures.
lead to more centralized decision making.

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Economic signals:
Answer result in shortages and surpluses.
interfere with the trades that can be mutually beneficial.
guide decision makers in their transactions in the marketplace.
never provide adequate information to consumers.

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Which of the following statements is/are true about market failures?
I. A seller produces too much of the good at too high of a price.
II. Information is available to all decision makers.
III. External costs are not considered in production decisions by producers.
Answer Statement I is true.
Statements I and II are true.
Statement III is true.
Statements I, II, and III are true.

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The market works to allocate sales to those potential sellers who most value the right to sell a good,
as indicated by their ability to produce the good at the lowest cost. This statement illustrates:
Answer producer surplus.
consumer surplus.
total surplus.
deadweight loss.

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Figure: Market in Equilibrium

Reference: Ref 4-35

(Figure: Market in Equilibrium) At the equilibrium price, this market's consumer surplus is equal to the
area:
Answer ABC.
ADI.
DIF.
EHF.

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Figure: Market in Equilibrium

Reference: Ref 4-35

(Figure: Market in Equilibrium) At the equilibrium price, this market's producer surplus is equal to the
area:
Answer ADI.
EHF.
AIF.
DIF.

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Economics Krugman 3rd Edition Test Bank

Question
Figure: Market in Equilibrium

Reference: Ref 4-35

(Figure: Market in Equilibrium) At the equilibrium price, this market's total producer and consumer
surplus equals the area:
Answer BCDG.
AIF.
DIF.
ADI.

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