Chapter 7 (Consumers, Producers, and the Efficiency of Markets )

Section A

1 a 2 a 3 c 4 c 5 b 6 c 7 a
8 c 9 b 10 d 11 d 12 a 13 b 14 c

Section B

Question 1

a)

b) At a price of $0.20, Ali would buy 5 donuts.

c) The figure below shows Ali's consumer surplus. At a price of $0.20, Ali's consumer surplus
would be $1.00.
d) If the price of donuts rose to $0.40, Ali's consumer surplus would fall to $0.30 and he would
purchase only 3 donuts.

Question 2

a. The maximum price that consumers will pay is $1.50.The demand schedule shows the maximum price that
consumers will pay for each bottle of spring water. The maximum price that consumers will pay for the 50th
bottle is $1.50.
b. The minimum price that producers will accept is $2.50.The supply schedule shows the minimum price that
producers will accept for each bottle of spring water. The minimum price that produces will accept for the
50th bottle is $2.50.
c. 50 bottles is more than the efficient quantity. The efficient quantity is such that marginal benefit from the last
bottle equals the marginal cost of producing it. The efficient quantity is the equilibrium quantity—40 bottles a
day.
d. Consumer surplus is $40.The equilibrium price is $2. The consumer surplus is the area of the triangle under
the demand curve above the price. The area of the triangle is (4  2)/2 multiplied by 40, which is $40.
e. Producer surplus is $40.The producer surplus is the area of the triangle above the supply curve below the
price. The price is $2. The area of the triangle is (2  0)/2 multiplied by 40, which is $40.
f. The deadweight loss is $5.Deadweight loss is the sum of the consumer surplus and producer surplus that is
lost because the quantity produced is not the efficient quantity. The deadweight loss equals the quantity (50 
40) multiplied by (2.50  1.50)/2, which is $5.