Q: In a competitive market equilibrium, what condition must be met for economic efficiency?

$$\text{Marginal benefit} = \text{Marginal cost}$$

Question 1

Suppose the market price for chai tea is $3.00. Based on the table of highest prices willing to pay, what is the total consumer surplus for Theresa, Tom, Terri, and Tim?

Accepted Answer

$6

Question 2

In a competitive market equilibrium, what condition must be met for economic efficiency?

Accepted Answer

$$	ext{Marginal benefit} = 	ext{Marginal cost}$$

Question 3

If the government imposes a price floor above the equilibrium price in the wheat market, what is the likely outcome?

Accepted Answer

A surplus of wheat

Question 4

Which area represents deadweight loss when the price of tea is set at $$2.20 instead of the equilibrium price of 2.00$$?

Accepted Answer

Areas C + E

Question 5

What is the effect of a $1-per-pack tax on cigarettes, as shown in the supply and demand diagram?

Accepted Answer

The supply curve shifts up by $1

Question 6

If the government imposes a price ceiling below the equilibrium rent in the apartment market, what happens?

Accepted Answer

There is a shortage of apartments

Question 7

How is total consumer surplus in a market calculated?

Accepted Answer

Area below the demand curve and above the market price

Question 8

What is the formula for finding the equilibrium price in a market given the demand and supply equations $$QD = 4,750,000 - 1,000P$$ and $$QS = -1,000,000 + 1,300P$$?

Accepted Answer

$$4,750,000 - 1,000P = -1,000,000 + 1,300P$$

Question 9

What is the economic surplus in a competitive market at equilibrium?

Accepted Answer

The sum of consumer surplus and producer surplus

Question 10

If a minimum wage is set above the equilibrium wage, what is the result in the labor market?

Accepted Answer

A surplus of workers

Question 11

What is the effect of a tax on economic efficiency?

Accepted Answer

It reduces economic efficiency and creates deadweight loss

Question 12

Who actually bears the burden of a tax in a market?

Accepted Answer

The burden is shared between buyers and sellers depending on elasticity

Question 13

If the government collects a tax from buyers instead of sellers, what happens to the equilibrium outcome?

Accepted Answer

Buyers pay a higher price, sellers receive a lower price, and the outcome is the same as if sellers paid the tax

Question 14

What is the definition of deadweight loss?

Accepted Answer

The reduction in economic surplus resulting from a market not being in competitive equilibrium

Question 15

Which of the following is an example of normative analysis?

Accepted Answer

Analyzing whether rent control is desirable or undesirable

Question 16

If the marginal benefit of the last unit sold is less than the marginal cost of production, what does this imply about the market?

Accepted Answer

Too much output is being produced

Question 17

What happens to producer surplus when a price floor is imposed above the equilibrium price?

Accepted Answer

Producer surplus increases by the area transferred from consumer surplus but decreases by the deadweight loss

Question 18

What is the formula for consumer surplus for an individual?

Accepted Answer

$$	ext{Consumer Surplus} = 	ext{Highest price willing to pay} - 	ext{Actual price paid}$$

Question 19

What is the effect of rent control (a price ceiling) on the apartment market?

Accepted Answer

Producer surplus is transferred to renters, and deadweight loss occurs

Question 20

Which equation represents the equilibrium condition in a market?

Accepted Answer

$$QD = QS$$

Economic Efficiency, Government Price Setting, and Taxes: Microeconomics Study Guide

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