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

$$CS = \frac{1}{2} \times (Q_e) \times (P_{max} - P_e)$$

Question 1

Suppose the market for a good is in equilibrium at price $$P_e$$ and quantity $$Q_e. If a $$price ceiling is set below $$P_e$$, what will be the immediate effect on the market?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 2

Which area on a supply and demand graph represents consumer surplus?

Accepted Answer

The area between the demand curve and the equilibrium price, up to the equilibrium quantity.

Question 3

If a $$1.00$$ per unit tax is imposed on sellers, how does the supply curve shift?

Accepted Answer

It shifts upward by $$1.00.$$

Question 4

Given the demand curve $$P = 12 - Q$$ and the supply curve $$P = 4 + rac{2}{3}Q$$, what is the equilibrium price and quantity?

Accepted Answer

Question 5

A price floor is set above the equilibrium price in the wheat market. What is the likely outcome?

Accepted Answer

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

Question 6

Deadweight loss from a price ceiling is best described as:

Accepted Answer

The loss in total surplus due to transactions that no longer occur.

Question 7

If a $$100$$ tax is imposed on cigarettes and the demand curve shifts down by $$100$$, what happens to the equilibrium quantity?

Accepted Answer

It decreases because the price consumers pay is higher.

Question 8

Which of the following best describes producer surplus?

Accepted Answer

The difference between the price producers receive and the minimum price they are willing to accept.

Question 9

When a tax is imposed on a good, what happens to consumer and producer surplus?

Accepted Answer

Both consumer and producer surplus decrease, and part of the lost surplus becomes tax revenue.

Question 10

Suppose a price ceiling is imposed on rental housing below the equilibrium price. Which of the following is a likely consequence?

Accepted Answer

Some producer surplus is transferred to renters, but there is also deadweight loss.

Question 11

If the government sets a price floor in the agricultural market, what happens to the area labeled 'F' in the diagram?

Accepted Answer

It represents consumer surplus transferred to farmers.

Question 12

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

Accepted Answer

$$CS = \frac{1}{2} 	imes (Q_e) 	imes (P_{max} - P_e)$$

Question 13

A $$1.00$$ tax is imposed on cigarettes. If the tax is levied on consumers, what happens to the demand curve?

Accepted Answer

It shifts downward by $$1.00.$$

Question 14

Which area on the tax incidence diagram represents tax revenue collected by the government?

Accepted Answer

The rectangle between the price consumers pay and the price sellers receive, up to the quantity sold after tax.

Question 15

If a price ceiling causes a shortage, which equation best represents the shortage amount?

Accepted Answer

$$Shortage = Q_d - Q_s at $$the ceiling price

Question 16

After a tax is imposed, the equilibrium quantity decreases from $$Q_e to$$ $$Q_{ew/tax}. $$What does the area labeled 'B+C' represent in the diagrams?

Accepted Answer

Deadweight loss due to the tax.

Question 17

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

Accepted Answer

Some mutually beneficial trades between buyers and sellers no longer occur.

Question 18

If the government imposes a price floor in the labor market (minimum wage), what is the most likely result?

Accepted Answer

A surplus of labor, meaning unemployment increases.

Question 19

Suppose the equilibrium price for a good is $$P_e = 5$$ and the government imposes a $$1$$ unit tax on sellers. If the new price consumers pay is $$P_c = 5.90$$ and the price sellers receive is $$P_s = 4.90$$, what is the tax incidence on consumers?

Accepted Answer

$$0.90$$ per unit

Question 20

Which of the following statements is true regarding the effect of a price floor on consumer and producer surplus?

Accepted Answer

Some consumer surplus is transferred to producers, but there is also deadweight loss.

Consumer Surplus, Producer Surplus, and Market Interventions: Price Controls and Taxes

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