Chapter 9: Applying the Competitive Model
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1. Consumer surplus measures:
a. the extra value consumers receive from consuming a good over what they pay for it
b. what consumers would be willing to pay for the right to consume a good at its current price
c. the difference between what consumers would pay for a good and the total costs to produce the good
d. both a and b

2. Everything else equal, when the supply curve shifts inward, consumer surplus:
a. increases
b. decreases
c. does not change
d. either increases or decreases

3. Jenna rents three DVDs each week. She would be willing to pay $12 to rent the first DVD, $10 to rent the second DVD, and $8 to rent the third DVD. She actually pays $4 to rent each DVD. Jenna's consumer surplus from renting the three DVDs each week is:
a. $30
b. $25
c. $18
d. none of the above

4. Producer surplus measures:
a. the excess of what producers receive for a given output level over and above the minimum amount producers require to supply that output level
b. the excess of what producers receive for a given output level over and above the consumer surplus
c. the difference between price and average total cost
d. none of the above

5. Everything else equal, given an upward sloping supply curve, if the demand curve were to shift outward, producer surplus:
a. increases
b. decreases
c. does not change
d. either increases or decreases

6. The figure below depicts the perfectly competitive market for oranges. Relative to the situation in which no oranges are available, the total value of Q* oranges to consumers is ______________, but since consumers only have to pay _______________ to consume Q* oranges, consumer surplus is given by____________.
a. areas A+B+C, areas B+C, area A
b. areas A+B, area B, area A
c. areas A+C, area C, area A
d. areas B+C, area B, area C

7. Consider once again the perfectly competitive market for oranges from question 6. According to the figure, producers are willing to receive a minimum of ______________ to supply Q* oranges, but they actually receive _______________ to supply Q* oranges; therefore, producer surplus is measured by _______________.

a. areas B+C, areas A+B+C, area A
b. area C, areas B+C, area B
c. area B, areas B+C, area C
d. areas A+C, areas A+B+C, area B

8. In the short-run, producer surplus is equal to:
a. the sum of profits plus fixed cost
b. the sum of profits plus variable cost
c. the sum of profits plus total cost
d. none of the above

9. In the long-run, producer surplus is equal to: I.. the increased payments to factors of production resulting from expansions in the output market II. zero, if the industry is a constant cost industry III. the sum of profits plus fixed cost
a. I only
b. II only
c. I and III only
d. I and II only
e. none of the above

10. The deadweight loss represents:
a. losses in consumer and/or producer surplus that are not transferred to anyone else
b. the forgone value of mutually beneficial transactions that do not take place
c. transfers of consumer surplus to producers
d. both a and b

11. An economically efficient allocation of resources is one for which:
a. the sum of consumer and producer surplus is maximized
b. no deadweight loss exists
c. producers and consumers have equal surplus
d. all of the above
e. both a and b

12. The figure below depicts the supply and demand curves for a perfectly competitive market. Suppose the government has imposed a price ceiling in this market, such that the price is not allowed to rise above P3. Consequently, which of the following exists?
a. a surplus of Q3 - Q2
b. a shortage of Q3 - Q2
c. a surplus of Q1 - Q2
d. a shortage of Q1 - Q2

13. The figure depicts the same supply and demand curves as shown in question 12. Recall that in question 12, there was a price ceiling of P3 imposed in this market. As a result of this price ceiling, producers ____________ in producer surplus and consumers ____________ in consumer surplus. The deadweight loss is given by _______________.

a. lose areas D+E+F, gain areas D+E, areas C+E
b. lose areas D+E, gain areas D+E+F and lose area C, areas C+E
c. lose areas D+E, gain area D and lose area C, areas C+E
d. gain areas A+B, lose areas A+B+C, area C

14. The figure below depicts the situation in a perfectly competitive market before and after the imposition of a tax. Initially, the long-run equilibrium price and quantity are P1 and Q1, respectively. Suppose now that the government levies a tax on firms of T per unit of output. In the long-run, the price producers receive net of the tax will be equal to ____________ and the price consumers pay for the good will be equal to ___________.

a. P3 , P2
b. P2 , P1
c. P2 , P3
d. P3 , P1

15. As in question 14, the figure depicts the situation in a perfectly competitive market before and after the imposition of a tax. Initially, the long-run equilibrium price and quantity are P1 and Q1, respectively. Suppose now that the government levies a tax on firms of T per unit of output. In the long-run, tax revenue to the government will be given by _________________ and the deadweight loss of the tax will be given by ___________.

a. area P1ABP2 , area ACB
b. area P3ACBP2 , area ACB
c. area P3AEP1 , area ACE
d. area P3ABP2 , area ACB

16. Generally, consumers bear a larger burden of a tax relative to that borne by producers
a. the more elastic demand is relative to supply
b. the more inelastic demand is relative to supply
c. the larger is the tax
d. none of the above

17. The excess burden of a tax refers to:
a. how much producers lose in surplus from the tax
b. how much consumers lose in surplus from the tax
c. the deadweight loss from the tax
d. both a and b

18. The figure represents the situation in the U.S. domestic market for some good. Prior to free trade, the domestic price is PD and QD units are produced and sold. Once the market is opened up to free trade, the domestic price becomes equal to the world price, PW. Consequently, relative to the situation without free trade, U.S. domestic consumers gain ____________, U.S. domestic producers lose ____________ and the net change in social welfare in the domestic market from international trade is ____________.

a. areas B+C, area B, a gain equal to area C
b. areas B+C+E, area B, a gain equal to areas C+E
c. areas B+C+E, areas B+C, a gain equal to area E
d. area C, areas B+C, a loss equal to area B

19. The figure represents the situation in a domestic market that is open to trade. Initially, domestic consumers pay a price equal to the world price without tariff. Now suppose the government imposes a tariff on the import of the good so that the price domestic consumers pay rises to the world price with tariff. Consequently, relative to the situation of free trade without the tariff, domestic consumers lose surplus of ___________, and domestic producers gain surplus of ___________.

a. areas B+D+E+F, area C
b. areas C+D+E+F, area G
c. areas D+E+F, area G+C
d. areas C+D+E+F, area C

20. As in question 19, the figure represents the situation in a domestic market that is open to trade. Initially, domestic consumers pay a price equal to the world price without tariff. Now suppose the government imposes a tariff on the import of the good so that the price domestic consumers pay rises to the world price with tariff. Tariff revenues are represented by ______________ and _____________ represents the deadweight loss of the tariff.

a. areas B+E, areas D+F
b. area E, areas B+D+F
c. area E, areas D+F
d. areas C+D+E+F, areas B+E+D+F



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