Question 1. What is total producer surplus in the market depicted below? A. $100

1. What is total producer surplus in the market depicted below?

A. $100

B.$125

C. $200

D. $625

2. In the absence of market failures (e.g. externalities or imperfect competition) the market equilibrium is considered efficient because:

A. prices are low.

B. the price consumers pay equals the profit producers receive.

C.no more trades remain that benefit some without harming others.

D. it assures that both the buyer and seller earn equal surplus.

3. The market equilibrium is only efficient when

A. buyers and sellers each earn equal surplus from the transaction.

B. consumer surplus and producer surplus are both zero.

C.all relevant costs, including those imposed on others, are accounted for.

D. income is distributed equitably.

4. Which of the following statements expresses the justification for making efficiency the first goal of economic interaction?

A. Efficiency gives the poor an incentive to improve their economic status.

B. Efficiency guarantees that the poor are always made better off.

C. People are not really concerned about the problems of the poor.

D.Efficiency maximizes total economic surplus and thereby allows other social goals to be more fully achieved.

5. Suppose that jeans initially sell for $60 in the market depicted above. If sellers lower their price to $40, it

would create an extra __ of economic surplus. Thus, selling jeans for $60 is __.

A.$160; inefficient

B. $80; efficient

C. $80; the equilibrium price

D. $160; efficient

Suppose that a firm uses water from a nearby river to cool its machinery and returns the water to the river

several degrees warmer, leading to a decline in the fish population downstream from the firm.

6. The damage to the downstream fish is a(n)

A.relevant cost of production to society.

B. relevant cost of production only if the firm is charged a fine for the damage done.

C. relevant cost of production only if there are commercial fishing activities downstream.

D. implicit cost of production which the firm will take into account in determining profit maximizing output.

7. If the firm does not have to pay for the damage to the downstream fish population, the equilibrium quantity

in the market for the firm’s output will be:

A. efficient

B. inefficiently low

C.inefficiently high

D. profitable

8. Suppose that the government fines the firm an amount equal to the damage imposed on the fish for each

degree increase in the temperature of water in the river. This government action

A. reduces efficiency in the market.

B. increases dead weight loss.

C.increases efficiency in the market.

D. violates the definition of efficiency.

9. The cumulative difference between the price producers actually receive for their output and their reservation

price (i.e. their marginal cost of production) is:

A.producer surplus.

B. deadweight loss.

C. total economics surplus.

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