Multiple Choice Questions
1. Jen values her time at $60 an hour. She spends 2 hours giving Colleen a massage. Colleen was willing to pay as much at $300 for the massage, but they negotiate a price of $200. In this transaction,
a. Consumer surplus is $20 larger than producer surplus.
b. Consumer surplus is $40 larger than producer surplus.
c. Producer surplus is $20 larger than consumer surplus.
d. Producer surplus is $40 larger than consumer surplus.
2. The demand curve for cookies is downward sloping. When the price of cookies is $2, the quantity demanded is 100. If the price rises to $3, what happens to consumer surplus?
a. It falls by less than $100.
b. It falls by more than $100.
c. It rises by less than $100.
d. It rises by more than $100.
3. John has been working as a tutor for $300 a semester. When the university raises the price it pays tutors to $400, Emily enters the market and begins tutoring as well. How much does producer surplus rise as a result of this price increase?
a. By less than $100
b. Between $100 and $200
c. Between $200 and $300
d. By more than $300
4. An efficient allocation of resources maximizes
a. Consumer surplus.
b. Producer surplus.
c. Consumer surplus plus producer surplus.
d. Consumer surplus minus producer surplus.
5. When a market is in equilibrium, the buyers are those with the __________ willingness to pay and the sellers are those with the __________ costs.
a. Highest, highest
b. Highest, lowest
c. Lowest, highest
d. Lowest, lowest
6. Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer's willingness to pay is
a. Negative.
b. Zero.
c. Positive but less than the marginal seller's cost.
d. Positive and greater than the marginal seller's cost.