Micro_CH5_SG Figure 7-11

1.

Refer to Figure 7-11. When the price falls from P2 to P1, producer surplus a. b. c. d. e. decreases by an amount equal to C. decreases by an amount equal to A+B. decreases by an amount equal to A+C. increases by an amount equal to A+B. increases by an amount equal to A+C

2.

Refer to Figure 7-11. Area B represents a. b. P2. the combined profits of all producers when the price is P2. the increase in producer surplus to all producers as the result of an increase in the price from P1 to

c. producer surplus to new producers entering the market as the result of an increase in the price from P1 to P2. d. that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P1 to P2. e. producer surplus to new producers entering the market as the result of a decrease in the price from P1 to P2. 3. Refer to Figure 7-11. When the price is P2, producer surplus is a. A.

b. c. d. e. 4.

A+C. A+B+C. D+G. A+B.

Refer to Figure 7-11. When the price is P1, producer surplus is a. b. c. d. e. A. C. A+B. C+D. A+B+C.

5.

National defense is a classic example of a public good because a. b. there is no market for private security services. it is difficult to exclude people from receiving the benefits from national defense once it is provided.

c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. d. there are no private firms willing to supply defense goods such as tanks and weapons.

e. even though the government needs to provide some level of national defense, only the private sector couold possibly know the optimal amount.

Figure 10-8

6.

Refer to Figure 10-8. What is the equilibrium price in this market? a. b. c. d. e. Less than $8 $8 Between $8 and $10 $10 More than $10

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

Alex Barb Carlos

7.

First Orange $2.00 $1.50 $0.75

Second Orange $1.50 $1.00 $0.25

Third Orange $0.75 $0.80 $0

Refer to Table 7-5. If the market price of an orange is $1.20, consumer surplus amounts to a. b. c. d. e. $0.70. $1.10. $1.20. $1.40. $5.00.

8.

Refer to Table 7-5. If the market price of an orange is $0.40, a. b. c. d. e. 6 oranges are demanded per day, and total consumer surplus amounts to $4.45. 6 oranges are demanded per day, and total consumer surplus amounts to $5.10. 7 oranges are demanded per day, and total consumer surplus amounts to $5.35. 7 oranges are demanded per day, and total consumer surplus amounts to $5.50. 7 oranges are demanded per day, and total consumer surplus amounts to $7.00.

9. day is

Refer to Table 7-5. If the market price of an orange is $0.70, the market quantity of oranges demanded per a. b. c. d. e. 5. 6. 7. 9. 10.

10. day is

Refer to Table 7-5. If the market price of an orange is $1.20, the market quantity of oranges demanded per a. b. c. d. e. 1. 2. 3. 4. 5.

11. Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then a. the after-tax equilibrium quantity of cigarettes smoked will be less than the s quantity of cigarettes smoked. ocially optimal

b. the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.

d. the before-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. e. Figure 7-1 There is not enough information to answer the question.

12.

Refer to Figure 7-1. When the price is P2, consumer surplus is a. b. c. d. e. A. B. D. A+B. A+B+C.

13.

Refer to Figure 7-1. When the price falls from P2 to P1, consumer surplus a. b. c. d. e. increases by an amount equal to A. decreases by an amount equal to B+C. increases by an amount equal to B+C. decreases by an amount equal to C. increases by an amount equal to D.

14.

Private markets fail to account for externalities because a. b. externalities don't occur in private markets. sellers include costs associated with externalities in the price of their product.

c. d. e. 15.

decision makers in the market fail to include the costs of their behavior to third parties. the government cannot easily estimate the optimal quantity of pollution. they sometimes do not achieve equilibrium.

Market failure can be caused by a. b. c. d. e. too much competition. externalities. low consumer demand. scarcity. greed

Figure 7-18

16.

Refer to Figure 7-18. Sellers whose costs are greater than the equilibrium price are represented by segment a. b. c. d. e. AC. CK. BC. CH. AK.

17. Refer to Figure 7-18. Buyers who value this good more than the equilibrium price are represented by which line segment?

a. b. c. d. e.

AC. CK. BC. CH. AK.

18. Refer to Figure 7-18. Buyers who value this good less than the equilibrium price are represented by which line segment? a. b. c. d. e. AC. CK. BC. CH. BH.

19. Refer to Figure 7-18. Sellers whose costs are less than the equilibrium price are represented by which line segment? a. b. c. d. e. 20. AC. CK. BC. CH. BH.

If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets? a. b. c. d. e. Consumer surplus increases. Consumer surplus decreases. Consumer surplus remains the same. Consumer surplus will not change; only producer surplus changes. Consumer surplus depends on what event led to the increase in the price of oak lumber.

21.

Because public goods are a. excludable, people have an incentive to be free riders.

b. c. d. e.

excludable, people do not have an incentive to be free riders. not excludable, people have an incentive to be free riders. not excludable, people do not have an incentive to be free riders. rival, people do not have an incentive to be free riders.

Figure 7-2

22.

Refer to Figure 7-2. Which area represents consumer surplus at a price of P2? a. b. c. d. e. ABD ACG BCDF DFG BDGC

23.

Refer to Figure 7-2. Which area represents consumer surplus at a price of P1? a. b. c. d. e. ABD ACG BCDF DFG ACG

24. P2?

Refer to Figure 7-2. Which area represents the increase in consumer surplus when the price falls from P1 to a. b. c. d. e. ABD ACG DFG BCGD BCF

25.

Private goods are both a. b. c. d. e. excludable and nonrival in consumption. nonexcludable and rival in consumption. excludable and rival in consumption. nonexcludable and nonrival consumption. excludable in consumption and not excludable in production.

Figure 7-17

26.

Refer to Figure 7-17. At equilibrium, consumer surplus is measured by the area a. ACG.

b. c. d. e. 27.

AFG. KBG. CFG. AHB.

Refer to Figure 7-17. The equilibrium allocation of resources is a. b. c. d. e. efficient because total surplus is maximized at the equilibrium. efficient because consumer surplus is maximized at the equilibrium. inefficient because consumer surplus is larger than producer surplus at the equilibrium. inefficient because total surplus is maximized when 10 units of output are produced and sold. inefficient because total surplus is maximized at the equilibrium.

28.

Which of the following quotations illustrates the Tragedy of the Commons? a. b. A bird in the hand is worth two in the bush. The only difference between the rich and other people is that the rich have more money.

c. What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others. d. e. 29. Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head. There aint no such thing as a free lunch.

All externalities a. b. c. d. e. cause markets to fail to allocate resources efficiently. cause equilibrium prices to be too high. benefit producers at the expense of consumers. cause equilibrium prices to be too low. result in efficient market solutions.

Table 11-2

Consider a small town with only three families, the Jones family, the Harris family, and the Wong family. The town does not currently have any streetlights so it is very dark at night. The three families are considering putting in

streetlights on Main Street and are trying to determine how many lights to install. The table below shows each familys willingness to pay for each streetlight.

Number of Streetlights 1 2 3 4 5 6

The Jones Family $180 140 90 30 0 0

The Harris Family $250 200 140 70 35 0

The Wong Family $220 210 180 130 60 20

30. Refer to Table 11-2. Suppose the cost to install each streetlight is $400 and the families have agreed to split the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the greatest number of streetlights for which the majority of families would vote yes? a. b. c. d. e. 1 streetlight 2 streetlights 3 streetlights 4 streetlights 6 streetlights

31. Refer to Table 11-2. Suppose the cost to install each streetlight is $200. How many streetlights should the town install to maximize total surplus from the streetlights? a. b. c. d. e. 32. 1 streetlight 2 streetlights 3 streetlights 4 streetlights 6 streetlights

Honey producers provide a positive externality to orchards because a. b. c. d. the honey producers get more honey. the orchard owner frequently gets stung by the honey producer's bees. the orchard owner does not have to purchase bees to pollinate his flowers. the honey producers have to rent access to the orchard grounds.

e. 33.

the honey producers keep the bees out of the orchard.

The supply curve for a product reflects the a. b. c. d. e. willingness to pay of the marginal buyer. quantity buyers will ultimately purchase of the product. cost to sellers of producing the product. seller's profit from producing the product. value to sellers of the product.

34.

An AM radio transmission of a baseball game is a. b. c. d. e. excludable and rival in consumption. excludable and not rival in consumption. not excludable and rival in consumption. not excludable and not rival in consumption. excludable in consumption and not excludable in production.

35.

Excludability is the property of a good whereby a. b. c. d. e. one person's use diminishes other peoples use. a person can be prevented from using it. a good is private, not public. a good is public, not private. a person cannot be prevented from using it.

36.

A cable television broadcast of a movie is a. b. c. d. excludable and rival in consumption. excludable and not rival in consumption. not excludable and rival in consumption. not excludable and not rival in consumption.

e. 37.

not excludable in consumption and not excludable in production

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus a. b. c. d. e. decreases. is unchanged. increases. may increase, decrease, or remain unchanged. cannot be determined without information on producer surplus.

38.

Who among the following is a free rider? a. b. Barry buys candy from the store where he works. Betty rides to work with Sally, but she pays Sally for gasoline and other travel-related expenses.

c. Joe drives 20,000 miles a year on public streets, but he pays no more in property taxes than Sam, who only drives 1,000 miles. d. Fred watches many public television programs, but he has never sent in a contribution to the station. e. Sue rides public transportation to work.

39. Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to a. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. b. overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. c. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. d. understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. e. understate the benefit they would receive from the public good and those who would be helped by government provision of a public good tend to understate the costs they would incur from the public good. Table 11-1

Consider the town of Tritown with only three residents, Ed, Jim, and Tony. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each residents willingness to pay for each acre of the park.

Acres 1 2 3 4 5 6 7

Ed $12 8 4 2 0 0 0

Jim $16 12 8 4 1 0 0

Tony $28 24 20 16 12 8 4

40. Refer to Table 11-1. Suppose the cost to build the park is $30 per acre. How many acres should the park be to maximize total surplus from the park in Tritown? a. b. c. d. e. 2 acres 3 acres 4 acres 5 acres 7 acres

41. Karen sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.50 per knife for as many knives as Karen is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $1.75, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.25. Assume Karen is rational in deciding how many knives to sharpen. Her producer surplus is a. b. c. d. e. $0.25. $0.50. $1.00. $1.75. $10.00.