Question 1 of 5 1.0 Points A. 1 B. 2 C. 3 D. 4 Question 2 of 5 1.0 Points A. 0.1

Question

Question 1 of 5

1.0 Points

A. 1

B. 2

C. 3

D. 4

Question 2 of 5

1.0 Points

A. 0.10

B. 0.20

C. 0.30

D. 0.40

Question 3 of 5

1.0 Points

A. BCG

B. ACH

C. ABGD

D. DGH

Question 4 of 5

1.0 Points

A. BCG

B. ACH

C. ABGD

D. DGH

Question 5 of 5

1.0 Points

A. increase producer surplus

B. reduce producer surplus

C. leave producer surplus unchanged

D. have an uncertain effect on producer surplus

Part 1 of 3 - Apples There are three consumers of apples grown in Eye Phone Orchards. Each consumer is willing to consume up to three apples, depending on the market price.
First Apple Second Apple Third Apple Mr Pod $1.75 $1.55 $1.15 Mr Pad $1.50 $1.15 $0.95 Mr Mac $1.30 $1.10 $0.85

Question 1 of 5

1.0 Points

Suppose the market price of an apple is $1.20. What is the quantity demanded for apples in this market?

A. 1

B. 2

C. 3

D. 4

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Question 2 of 5

1.0 Points

If the market price of apples falls from $1.20 to $1.00, Mr Mac is better off. How much does his consumer surplus increase? $_____

A. 0.10

B. 0.20

C. 0.30

D. 0.40

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Part 2 of 3 - Producer Surplus Refer to the supply curve shown below for the next TWO questions:  

Question 3 of 5

1.0 Points

Which area represents producer surplus when the price is P1?

A. BCG

B. ACH

C. ABGD

D. DGH

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Question 4 of 5

1.0 Points

The price rises from P1 to P2. The gain in producer surplus, which goes to new producers, is represented by the area:

A. BCG

B. ACH

C. ABGD

D. DGH

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Part 3 of 3 -

Question 5 of 5

1.0 Points

If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will:

A. increase producer surplus

B. reduce producer surplus

C. leave producer surplus unchanged

D. have an uncertain effect on producer surplus

Explanation / Answer

(Question 1) (D)

At price of $1.20, Mr. Pod will buy 2 apples, Mr. Pad will buy 1 apple and Mr. Mac will buy 1 apple. Market demand is (2 + 1 + 1) = 4 apples.

(Question 2) (C)

When price is $1.2, Mr. Mac buys 1 apple.

Consumer surplus (CS) = $(1.3 - 1.2) = $0.1

When price is $1, he buys 2 apples.

Consumer surplus = $(1.3 - 1) + $(1.1 - 1) = $(0.3 + 0.1) = $0.4

Increase in CS = $0.4 - $0.1 = $0.3

(Question 3) (A)

Producer surplus (PS) = Area between supply curve and market price = Area BCG (when price is P1)

(Question 4) (D)

When price is P2, PS = Area ACH

Increase in PS = Area ACH - Area BCG = Area ABGH, out of which area DGH goes to new producers.

(Question 5) (A)

An increase in demand will increase the good's price, so PS as area between price and supply curve will increase.

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