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Exam 7: Consumers, Producers, and the Efficiency of Markets

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Question 181

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Figure 7-4 -Refer to Figure 7-4. Which area represents the increase in consumer surplus when the price falls from P1 to P2?

A) BDF
B) AFG
C) ABC
D) ABDG

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

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Question 182

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If the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur?

A) The price of kidneys would rise to balance supply and demand.
B) The gains from trade would make both buyers and sellers better off.
C) Thousands of lives would be saved.
D) All of the above are correct.

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

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Question 183

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Figure 7-12 -Refer to Figure 7-12. If the equilibrium price is $200, what is the producer surplus?

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

Figure 7-16 -Refer to Figure 7-16. If the price of the good is $600, then producer surplus amounts to

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following principles?

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Scenario 7-2 Suppose market demand and market supply are given by the equations: -Refer to Scenario 7-2. Suppose a reduction in input prices shifts the market supply curve to By how much does total producer surplus increase as a result of this supply shift?

Table 7-12 The only four producers in a market have the following costs: -Refer to Table 7-12. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for

Table 7-11 The following table represents the costs of five possible sellers. -Refer to Table 7-11. If the price is $1,000,

Figure 7-1 -Refer to Figure 7-1. If the price of the good is $150, then consumer surplus amounts to

Market power and externalities are examples of market failures.

If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the

Figure 7-28 -Refer to Figure 7-28. At the quantity Q3,

Tammy loves donuts. The table shown reflects the value Tammy places on each donut she eats: a. Use this information to construct Tammy's demand curve for donuts. b. If the price of donuts is $0.20, how many donuts will Tammy buy? c. Show Tammy's consumer surplus on your graph. How much consumer surplus would she have at a price of $0.20? d. If the price of donuts rose to $0.40, how many donuts would she purchase now? What would happen to Tammy's consumer surplus? Show this change on your graph.

Figure 7-24 -Refer to Figure 7-24. At equilibrium, consumer surplus is measured by the area

Welfare economics is the study of

If a market is in equilibrium, then it is impossible for a social planner to raise economic welfare by increasing or decreasing the quantity of the good.

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes

Answer each of the following questions about supply and producer surplus. a. What is producer surplus, and how is it measured? b. What is the relationship between the cost to sellers and the supply curve? c. Other things equal, what happens to producer surplus when the price of a good rises? Illustrate your answer on a supply curve.