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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? i) Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay. Ii) Free markets allocate the demand for goods to the sellers who can produce them at the least cost.


A) i) only
B) ii) only
C) both i) and ii)
D) neither i) nor ii)

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

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Total surplus is equal to


A) value to buyers - profit to sellers.
B) value to buyers - cost to sellers.
C) consumer surplus x producer surplus.
D) consumer surplus + producer surplus) x equilibrium quantity.

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

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Table 7-17 Table 7-17 -Refer to Table 7-17. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is A) $18 lower than it would be if the equilibrium number of units were bought and sold. B) $22 lower than it would be if the equilibrium number of units were bought and sold. C) $26 lower than it would be if the equilibrium number of units were bought and sold. D) $6 higher than it would be if the equilibrium number of units were bought and sold. -Refer to Table 7-17. Both the demand curve and the supply curve are straight lines. If 6 units are bought and sold, then total surplus is


A) $18 lower than it would be if the equilibrium number of units were bought and sold.
B) $22 lower than it would be if the equilibrium number of units were bought and sold.
C) $26 lower than it would be if the equilibrium number of units were bought and sold.
D) $6 higher than it would be if the equilibrium number of units were bought and sold.

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

Correct Answer

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Table 7-4 The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis Cardinal's baseball game at Wrigley Field. Table 7-4 The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis Cardinal's baseball game at Wrigley Field. -Refer to Table 7-4. If you have two essentially) identical tickets that you sell to the group in an auction, what will be the selling price for each ticket? A) $21 B) $26 C) $51 D) $61 -Refer to Table 7-4. If you have two essentially) identical tickets that you sell to the group in an auction, what will be the selling price for each ticket?


A) $21
B) $26
C) $51
D) $61

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

Correct Answer

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Figure 7-18 Figure 7-18 -Refer to Figure 7-18. Total surplus amounts to $500 if consumer surplus amounts to A) $290 and if the price of the good is $150. B) $300 and if the price of the good is $130. C) $275 and if the price of the good is $160. D) $400 and if the price of the good is $100. -Refer to Figure 7-18. Total surplus amounts to $500 if consumer surplus amounts to


A) $290 and if the price of the good is $150.
B) $300 and if the price of the good is $130.
C) $275 and if the price of the good is $160.
D) $400 and if the price of the good is $100.

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

Correct Answer

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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) True
B) False

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Figure 7-11 Figure 7-11 -Refer to Figure 7-11. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? A) Producer surplus increases by $625. B) Producer surplus increases by $1,875. C) Producer surplus decreases by $625. D) Producer surplus decreases by $1,875. -Refer to Figure 7-11. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus?


A) Producer surplus increases by $625.
B) Producer surplus increases by $1,875.
C) Producer surplus decreases by $625.
D) Producer surplus decreases by $1,875.

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

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When the demand for a good increases and the supply of the good remains unchanged, consumer surplus


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

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

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The French expression used by free-market advocates, which literally translates as "allow them to do," is


A) laissez-faire.
B) je ne sais pas.
C) si'l vous plait.
D) tête­à­tête.

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

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On a graph, consumer surplus is represented by the area


A) between the demand and supply curves.
B) below the demand curve and above price.
C) below the price and above the supply curve.
D) below the demand curve and to the right of equilibrium price.

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

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Efficiency refers to whether a market outcome is fair, while equality refers to whether the maximum amount of output was produced from a given number of inputs.

A) True
B) False

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Table 7-11 The following table represents the costs of five possible sellers. Table 7-11 The following table represents the costs of five possible sellers. -Refer to Table 7-11. If the market price is $1,400, the combined total cost of all participating sellers is A) $5,700. B) $1,500. C) $1,400. D) $4,100. -Refer to Table 7-11. If the market price is $1,400, the combined total cost of all participating sellers is


A) $5,700.
B) $1,500.
C) $1,400.
D) $4,100.

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

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Figure 7-24 Figure 7-24 -Refer to Figure 7-24. The equilibrium allocation of resources is A) efficient because total surplus is maximized at the equilibrium. B) efficient because consumer surplus is maximized at the equilibrium. C) inefficient because consumer surplus is larger than producer surplus at the equilibrium. D) inefficient because producer surplus is not maximized. -Refer to Figure 7-24. The equilibrium allocation of resources is


A) efficient because total surplus is maximized at the equilibrium.
B) efficient because consumer surplus is maximized at the equilibrium.
C) inefficient because consumer surplus is larger than producer surplus at the equilibrium.
D) inefficient because producer surplus is not maximized.

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

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In a market, the marginal buyer is the buyer


A) whose willingness to pay is higher than that of all other buyers and potential buyers.
B) whose willingness to pay is lower than that of all other buyers and potential buyers.
C) who is willing to buy exactly one unit of the good.
D) who would be the first to leave the market if the price were any higher.

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

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The current policy on kidney donation effectively sets a price ceiling of zero.

A) True
B) False

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Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in buying one for $3,000. Michael's consumer surplus is


A) $500.
B) $3,000.
C) $3,500.
D) $6,500.

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

Correct Answer

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Figure 7-15 Figure 7-15 -Refer to Figure 7-15. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market? A) A B) B C) A+B D) G -Refer to Figure 7-15. When the price rises from P1 to P2, which area represents the increase in producer surplus due to new producers entering the market?


A) A
B) B
C) A+B
D) G

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

Correct Answer

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The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium price of chocolate


A) increases, and producer surplus increases.
B) increases, and producer surplus decreases.
C) decreases, and producer surplus increases.
D) decreases, and producer surplus decreases.

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

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Producer surplus is the amount a seller is paid minus the cost of production.

A) True
B) False

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In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.

A) True
B) False

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