Q: Which formula correctly calculates consumer surplus in a market?

$$\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid}$$

Q: Suppose a tax of $$t$$ per unit is imposed on sellers. Which formula gives the tax revenue collected by the government?

$$\text{Tax Revenue} = t \times Q_{\text{tax}}$$

Question 1

Suppose a country can produce either 10 units of Good A or 20 units of Good B with all its resources. What is the opportunity cost of producing 1 unit of Good A?

Accepted Answer

$$2$$ units of Good B$

Question 2

Which of the following best describes the law of increasing marginal opportunity cost as illustrated by a bowed-out Production Possibilities Frontier (PPF)?

Accepted Answer

As more of one good is produced, the opportunity cost of producing additional units increases.

Question 3

A market is in equilibrium when:

Accepted Answer

Quantity demanded equals quantity supplied at the market price.

Question 4

If the government imposes a binding price ceiling below the equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 5

Suppose the demand for laptops increases while the supply of laptops decreases. What will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase, but the effect on equilibrium quantity is ambiguous.

Question 6

Which of the following is NOT a demand shifter?

Accepted Answer

A change in the price of the good itself.

Question 7

If a country has a comparative advantage in producing wheat, it means:

Accepted Answer

It can produce wheat at a lower opportunity cost than other countries.

Question 8

A tariff imposed on imported cars will most likely:

Accepted Answer

Increase domestic car prices, reduce imports, and create deadweight loss.

Question 9

Which formula correctly calculates consumer surplus in a market?

Accepted Answer

$$	ext{Consumer Surplus} = 	ext{Willingness to Pay} - 	ext{Price Paid}$$

Question 10

If the world price of steel is below the domestic equilibrium price and a country opens to free trade, what will happen in the domestic market?

Accepted Answer

The country will import steel, and domestic producers will sell less at a lower price.

Question 11

Suppose a tax of $$t$$ per unit is imposed on sellers. Which formula gives the tax revenue collected by the government?

Accepted Answer

$$	ext{Tax Revenue} = t 	imes Q_{	ext{tax}}$$

Question 12

Which of the following best explains why deadweight loss (DWL) occurs when a tax is imposed?

Accepted Answer

A tax reduces the quantity traded below the efficient market equilibrium, causing lost gains from trade.

Question 13

If a country is in autarky, which of the following is true?

Accepted Answer

The country does not trade with other countries.

Question 14

Which of the following is an example of a positive incentive?

Accepted Answer

A company offers a bonus to employees who meet their sales targets.

Question 15

Suppose the government sets a price floor above the equilibrium price for wheat. What is the likely result?

Accepted Answer

A surplus of wheat, because quantity supplied exceeds quantity demanded.

Question 16

Which of the following best describes a mixed economy?

Accepted Answer

An economy with both private and government involvement in resource allocation.

Question 17

If the marginal benefit of consuming a good is greater than its marginal cost, what should a rational consumer do?

Accepted Answer

Consume more of the good.

Question 18

Which of the following is a likely reason for anti-globalization sentiment?

Accepted Answer

Concerns about job losses in industries facing foreign competition.

Question 19

If the supply curve for a good shifts to the right while demand remains unchanged, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 20

Suppose the government imposes a quota on imported sugar, limiting the quantity that can be imported. What is a likely effect?

Accepted Answer

Domestic sugar prices will rise, and there will be deadweight loss.

ECON 251 Exam 1 Study Guide: Foundations, Markets, Efficiency, and International Trade

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