Question

21 Jackie finds a pair of jeans that she likes but the price tag is missing. She is willin buy it as long as it's not more than $100. The cashier informs Jackie that the Jackie buys the jeans, and therefore achieved a consumer surplus of: Jackie that the price is $72. A) -$100 because that is what she was willing to pay. B). $72, the price that she actually paid. O $28, the difference between what she was willing to pay and the price. D) $0 because the jeans were not actually discounted. 22. While Steve is cleaning out his garage, he finds an old surfboard that he no longer needs. As he walks to the dumpster to throw it out, his neighbor John asks if he could have it. John offers Steve a 6-pack of beer (worth $10) in exchange, which Steve happily accepts. Steve has achieved a producer surplus of: A) SO, since he was just going to throw out the board. B) $10, the value of the beer he received. C) $5, because Steve and John benefited equally from the $10 transaction. D) $50, because that's what the surfboard was likely worth. 23. When the price of running shoes is higher than the market equilibrium price, which of these occurs? A) consumer surplus rises and deadweight loss falls B) consumer surplus rises and deadweight loss rises C) consumer surplus falls and deadweight loss falls D) consumer surplus falls and deadweight loss rises 24. Jessica lists her faulty treadmill for sale on craigslist but does not disclose the problems with it. If Blake buys the treadmill believing that it's problem-free, this is an example of market failure due to: A) the existence of external costs B) the existence of public goods C) the lack of competition D) asymmetric information 25. Which of the following price floors for milk would not cause a surplus in the market if the equilibrium price for milk is $3.60? A) $3.90 B) $3.80 C) $3.50 D) All price floors cause a surplus.

Answer 1

Answer

21.

The correct answer is "option C"
C. 28, as the difference between what she was willing to pay and the price.

Consumer surplus is the area under the demand curve and above the price.
Consumer Surplus=Willingness to Pay-Price=100-72=28

22.
The correct answer is "option B"
B)$10, the value of beer he received

Producer surplus=Price-minimum willingness price=10-0=10

23.
The correct answer is "option D"
D. Consumer surplus falls and deadweight loss rises

When the market price is above the equilibrium price the quantity supplied will be more than quantity demanded, as a result, consumer surplus will fall and deadweight loss will rise.

24.
The correct answer is "option D"
D. Asymmetric information

Asymmetric information arises when in an economic transaction one party involved has more information than the other party involved.

25.
The correct answer is "option C"
C) $3.50

If the price floor is below the equilibrium price then it is non-binding. The price below equilibrium creates a shortage.