Q: Which formula correctly calculates the area of consumer surplus in a market with a linear demand curve?

$$CS = \frac{1}{2} \times (base) \times (height)$$

Question 1

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay for a good and the actual price the consumer pays.

Question 2

Suppose the market price for a cup of chai tea is $$3.50. Theresa is willing to pay 6.00$$, Tom $$5.00, and Terri 4.00. $$What is the total consumer surplus for these three consumers?

Accepted Answer

$$2.50 + 1.50$$ + $$0.50 = 4.50$$

Question 3

Producer surplus is maximized in a competitive market when:

Accepted Answer

The sum of consumer surplus and producer surplus is at a maximum.

Question 4

A deadweight loss occurs when:

Accepted Answer

The market is not in equilibrium, resulting in a reduction of economic surplus.

Question 5

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

Accepted Answer

A shortage of the good.

Question 6

Which formula correctly calculates the area of consumer surplus in a market with a linear demand curve?

Accepted Answer

$$CS = \frac{1}{2} 	imes (base) 	imes (height)$$

Question 7

A price floor set above the equilibrium price in the wheat market will:

Accepted Answer

Transfer some consumer surplus to producers and create a deadweight loss.

Question 8

If the demand for gasoline is steep, who bears most of the burden of a gasoline tax?

Accepted Answer

Buyers bear most of the burden.

Question 9

Suppose the demand and supply for apartments in New York City are given by $$Q_D = 4,750,000 - 1,000P$$ and $$Q_S = -1,000,000 + 1,300P. $$What is the equilibrium price?

Accepted Answer

$$P = 2,500$$

Question 10

Which of the following is a normative statement regarding price controls?

Accepted Answer

Price controls are bad for society.

Question 11

A $$1.00-per-pack tax on cigarettes shifts the supply curve up by 1.00$. If the equilibrium price rises from 6.00$ to 6.90$, what price do producers receive after the tax?

Accepted Answer

$$5.90$$

Question 12

Which of the following best explains why a price gouging law during an emergency might lead to a shortage?

Accepted Answer

It sets a price ceiling below the new equilibrium, increasing quantity demanded but not quantity supplied.

Question 13

What is the economic incidence of a tax?

Accepted Answer

The actual division of the burden of a tax between buyers and sellers.

Question 14

If a rent ceiling is imposed at $$1,500$$ when the equilibrium rent is $$2,500$$, what happens to the quantity of apartments supplied and demanded?

Accepted Answer

Quantity supplied decreases, quantity demanded increases.

Question 15

Which of the following is true about deadweight loss?

Accepted Answer

It is zero at competitive equilibrium.

Question 16

A tax is considered efficient if:

Accepted Answer

It imposes a small excess burden relative to the tax revenue it raises.

Question 17

Which equation represents the equilibrium condition in a market?

Accepted Answer

$$Q_D = Q_S$$

Question 18

If the government imposes a minimum wage above the equilibrium wage, what is the likely result?

Accepted Answer

A surplus of workers (unemployment).

Question 19

Which of the following is an example of a price floor?

Accepted Answer

Minimum wage laws.

Question 20

Suppose a per-unit tax is imposed on sellers. What happens to the supply curve?

Accepted Answer

It shifts upward by the amount of the tax.

Economic Efficiency, Government Price Setting, and Taxes: Core Concepts in Macroeconomics

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