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Chapter 7 practice questions



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

Normative analysis refers to what
a.
is.
b.
should be.
c.
maximizes efficiency.
d.
is politically correct.
 

2. 

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
a.
maximizes costs of the seller.
b.
maximizes the profit of buyers.
c.
maximizes the total welfare of buyers and sellers.
d.
minimizes the expenditure of buyers.
 

3. 

Willingness to pay measures the
a.
amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
b.
amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.
c.
maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept.
d.
maximum amount that a buyer will pay for a good.
 

4. 

Consumer surplus is
a.
a buyer's willingness to pay minus the price.
b.
a buyer's willingness to pay plus the price.
c.
the price of the product minus the buyer's willingness to pay.
d.
when the buyer's willingness to pay and the price of the product are equal.
 

5. 

Chad is willing to pay $4.00 to get his second cup of morning latté. He finds a vendor selling latté for $3.75. Chad's consumer surplus is
a.
$0.25.
b.
$0.50.
c.
$3.75.
d.
$4.00.
 

6. 

Suppose there is an early freeze in California that ruins the lemon crop. What happens to consumer surplus in the market for lemons?
a.
It increases.
b.
It decreases.
c.
It is not affected by this change in market forces.
d.
It increases very briefly then decreases.
 

7. 

Total surplus in a market is
a.
the total costs to sellers of providing the goods less the total value to buyers of the goods.
b.
the total value to buyers of the goods less the costs to sellers of providing those goods.
c.
less than consumer surplus plus producer surplus.
d.
greater than consumer surplus plus producer surplus.
 

8. 

When a market is in equilibrium, which of the following would not be correct?
a.
The price determines which buyers and sellers participate in the market.
b.
Those buyers who value the good more than the price choose to buy the good.
c.
Those sellers whose costs are less than the price choose to produce and sell the good.
d.
Consumer surplus will be equal to producer surplus.
 

9. 

The "invisible hand" refers to
a.
the marketplace guiding the self-interests of market participants into promoting general economic well-being.
b.
the marketplace as a place where government looks out for the interests of individual participants in the market.
c.
the equity that results from market forces allocating the goods produced in the market.
d.
the automatic maximization of consumer surplus in free markets.
 

10. 

The decisions of buyers and sellers that affect people who are not participants in the market create
a.
market power.
b.
externalities.
c.
profiteering.
d.
market equilibrium.
 



 
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