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ECON101 Lecture Notes - Lecture 8: Economic Surplus, Demand Curve, Efficient-Market Hypothesis

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2 Aug 2016
School
University of Waterloo
Department
Economics
Course
ECON101
Professor
Olivia Mesta

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ECON101 Full Course Notes
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ECON101 Full Course Notes
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Document Summary

Which consumers consume it: welfare econ: the study of how the allocation of resources affects economic well-being. Consumer side: willingness to pay: how willing a buyer is to pay for a good, up to the max amount the buyer will pay. Measures how the buyer values the good. Eg. given 4 different values of each person who is willing to pay for one product, see what the price of the product is, and whoever is at or above that price level will purchase the product. That is how you get qd at a certain price level. The amount a buyer is willing to pay minus what the buyer actually pays. If wtp > p, positive consumer surplus (good thing) Cost and the supply curve: cost: the value of everything a seller must give up to produce a good (eg. op cost) Includes cost of resources (including value of the seller"s time)

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Related Questions

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

Question 1 options:

1)

buy less of both coffee and donuts.

2)

buy less coffee and more donuts.

3)

buy more coffee and less donuts.

4)

spend the same amount on coffee as he does on donuts.

Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

Question 2 options:

1)

the optimal consumption bundle.

2)

the optimal production bundle.

3)

diminishing marginal utility.

4)

optimal point.

Question 3 (1 point)

What does the economic theory of marginal utility infer?

Question 3 options:

1)

consumers naturally know which consumption choices will maximize their utility.

2)

consumers who watch market trends are better at maximizing their utility than are those who do not watch those trends.

3)

one cannot maximize utility without taking an economics class that explains utility theory.

4)

one cannot maximize utility without doing the math of calculating the ratios of marginal utility divided by price.

Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

Question 4 options:

1)

Her income elasticity of demand for chocolate is equal to one.

2)

Her income elasticity of demand for chocolate is equal to zero.

3)

Her price elasticity of demand for chocolate is equal to one.

4)

Her price elasticity of demand for chocolate is equal to zero.

Save

Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

Question 5 options:

1)

substitutes for the good become more available.

2)

substitutes for the good become less available.

3)

the good becomes more of a necessity.

4)

the time allowed for adjustment is shortened.

Save

Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

Question 6 options:

1)

consumer surplus increases.

2)

consumer surplus decreases.

3)

consumer surplus creates incentive to save.

4)

consumer surplus creates incentive to spend.

Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

Question 7 options:

1)

profit.

2)

revenue.

3)

consumer utility.

4)

consumer surplus.

Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

Question 8 options:

1)

Adam, Brian, Robert, and Sam.

2)

Brian and Robert.

3)

Adam and Sam.

4)

Brian, Robert, and Sam.

Save

Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

Question 9 options:

1)

$8

2)

$6

3)

$7

4)

$5

Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

Question 10 options:

1)

Manfred will shovel two driveways for a total revenue of $64 and his producer surplus will be $9.

2)

Manfred will shovel three driveways for a total revenue of $75 and his producer surplus will be $12.

3)

Manfred will shovel three driveways for a total revenue of $96 and his producer surplus will be $5.

4)

Manfred will shovel four driveways for a total revenue of $125 and his producer surplus will be $18.

Save

Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

Question 11 options:

1)

producer shortage.

2)

producer surplus.

3)

consumer shortage.

4)

consumer surplus.

Save

Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

Question 12 options:

1)

It reduces the marginal utility derived from each dollar spent on eBooks.

2)

It reduces the marginal utility derived from each hardcopy book purchased.

3)

There will not be a substitution effect.

4)

There will not be a change in the number of eBooks in the set of consumption possibilities.

Save

Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

Question 13 options:

1)

when supply changes.

2)

when product quality changes.

3)

when marketing changes.

4)

when price changes.

Save

Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Mary’s optimal weekly consumption bundle?

Question 14 options:

1)

25 cups of tea and 50 pastries.

2)

50 cups of tea and 25 pastries.

3)

58 cups of tea and 20 pastries.

4)

60 cups of tea and 30 pastries.

Save

Question 15 (1 point)

When is producer surplus a positive value?

Question 15 options:

1)

the price the producer is willing to charge equals the market price.

2)

there is no tax applied to the good.

3)

the price the producer is willing to charge is less than the market price.

4)

the price the producer is willing to charge is greater than the market price.

Under a binding price ceiling, what does the change in consumer surplus represent?
A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.

When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole
A) worse off than a comparable tariff.
B) not as bad off as a comparable tariff.

C) about the same as a comparable tariff.

D) Any of the above can be true.

What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.

C) Producer and consumer surplus increase, and these gains are smaller than the government cost.

D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.

Why is there a deadweight loss associated with subsidy payments?
A) There is no deadweight loss from a subsidy.
B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

17. Which of the following is a determinant of supply?

A. Tastes and preferences

B. Price of a complementary good

C. Consumer income

D. Technology

 

18. A market is in equilibrium:

A. provided there is no surplus of the product

B. at all prices above that shown by the intersection of the supply and demand curves

C. if the amount producers want to sell is equal to the amount consumers want to buy

D. whenever the demand curve is downsloping and the supply curve is upsloping.

 

19. If the market price is above the equilibrium price:

A. A shortage will occur and producers will produce more and lower prices

B. A surplus will occur and producers will produce less and lower prices

C. A surplus will result and consumers will bid prices up

D. Producers will make extremely high profits

 

20. The market system automatically corrects a surplus condition in a competitive market by:

A. Raising the price of the commodity in question while increasing the quantity demanded

B. Raising the price of the commodity in question while decreasing the quantity demanded

C. Reducing the price of the commodity in question while increasing the quantity demanded

D. Reducing the price of the commodity in question while decreasing the quantity demanded

 

21. The price elasticity of demand measures:

A. buyer responsiveness to price changes.

B. the extent to which demand curve shifts as incomes change.

C. the slope of the demand curve.

D. how far business executives can stretch their fixed costs

 

22. The elasticity of demand for a product is likely to be greater:

A. if the product is a necessity, rather than a luxury good.

B. the greater the amount of time over which buyers adjust to a price change

C. the smaller the proportion of one's income spent on the product.

D. the smaller the number of substitute products available.

 

23. Market failure is said to occur whenever:

A. private markets do not allocate resources in the most economically desirable way

B. prices rise

C. some consumers who want a good do not obtain it because the price is higher than they are willing to pay

D. government intervenes in the functioning of private markets.

 

24. A negative externality or spillover cost occurs when:

A. firms fail to achieve allocative efficiency.

B. firms fail to achieve productive efficiency.

C. the price of the good exceeds the marginal cost of producing it.

D. the total cost of producing a good exceeds the costs borne by the producer