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Name:
Chapter 7 |
True/False
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T F | 1. | Consumer surplus is the buyer's willingness to pay minus the seller's cost.
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T F | 2. | If the demand curve in a market is stationary, consumer surplus decreases when the price in that market increases.
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T F | 3. | If your willingness to pay for a hamburger is €3.00 and the price is €2.00, your consumer surplus is €5.00.
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T F | 4. | Producer surplus is a measure of the unsold inventories of suppliers in a market.
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T F | 5. | Consumer surplus is a good measure of buyers' benefits if buyers are rational.
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T F | 6. | Cost to the seller includes the opportunity cost of the seller's time.
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T F | 7. | The height of the supply curve is the marginal seller's cost.
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T F | 8. | Total surplus is the seller's cost minus the buyer's willingness to pay.
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T F | 9. | Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price.
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T F | 10. | Producer surplus is the area above the supply curve and below the price.
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T F | 11. | The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficient when particular assumptions hold true.
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T F | 12. | Equilibrium in a competitive market maximizes total surplus.
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T F | 13. | The two main types of market failure are market power and externalities.
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T F | 14. | Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market.
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T F | 15. | Producing more of a product always adds to total surplus.
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Multiple Choice
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A B C D E | 16. | Consumer surplus is the area
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A B C D E | 17. | A buyer's willingness to pay is that buyer's
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A B C D E | 18. | If a buyer's willingness to pay for a new Honda is €20,000 and she is able to actually buy it for €18,000, her consumer surplus is
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A B C D | 19. | An increase in the price of a good along a stationary demand curve
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A B C D E | 20. | Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay €30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one. If the price is €25, how many vases will be sold and what is the value of consumer surplus in this market?
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A B C D E | 21. | Producer surplus is the area
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A B C D E | 22. | If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then
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A B C D E | 23. | If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then
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A B C D E | 24. | The seller's cost of production is
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A B C D E | 25. | Total surplus is the area
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A B C D | 26. | An increase in the price of a good along a stationary supply curve
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A B C D | 27. | Adam Smith's "invisible hand" concept suggests that a competitive market outcome
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A B C D | 28. | In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should
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A B C D E | 29. | If buyers are rational and there is no market failure,
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A B C D | 30. | If a producer has market power (can influence the price of the product in the market) then free market solutions
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A B C D E | 31. | If a market is efficient, then
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A B C D | 32. | If a market generates a side effect or externality, then such market solutions
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A B C D | 33. | Medical care clearly enhances people’s lives. Therefore, we should consume medical care until
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A B C D | 34. | Rainer has ten pairs of football boots and Helene has none. A pair of football boots costs €50 to produce. If Rainer values an additional pair of boots at €100 and Helene values a pair of boots at €40, then to maximize
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A B C D E | 35. | Suppose that the price of a new bicycle is €300. Natalie values a new bicycle at €400. It costs €200 for the seller to produce the new bicycle. What is the value of total surplus if Natalie buys a new bike?
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