Q: Which of the following best describes consumer surplus?

$$CS = \text{willingness to pay} - \text{actual price}$$

Question 1

Suppose a new technology reduces the cost of producing electric cars, while at the same time, consumer preferences shift in favor of electric cars. What is the certain effect on the equilibrium quantity and price in the electric car market?

Accepted Answer

Equilibrium quantity increases; effect on equilibrium price is ambiguous.

Question 2

If the price of coffee increases, what is likely to happen to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea increases.

Question 3

Which of the following would cause a rightward shift in the supply curve for smartphones?

Accepted Answer

A decrease in the price of microchips, an input for smartphones.

Question 4

A price ceiling is set below the equilibrium price in the market for apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 5

Which of the following best describes consumer surplus?

Accepted Answer

$$CS = 	ext{willingness to pay} - 	ext{actual price}$$

Question 6

If a per-unit tax is imposed on sellers, which of the following is true regarding the tax burden?

Accepted Answer

The burden depends on the relative elasticities of supply and demand.

Question 7

Suppose the government sets a price floor above the equilibrium price in the wheat market. What will happen to consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus decreases, producer surplus may increase or decrease, and deadweight loss arises.

Question 8

Which of the following would cause a leftward shift in the demand curve for fast food?

Accepted Answer

A decrease in consumer income, assuming fast food is a normal good.

Question 9

If the market for face masks is not in equilibrium and there is a surplus, what will happen to the price and quantity exchanged?

Accepted Answer

Price will fall and quantity exchanged will decrease.

Question 10

Which of the following best explains why efficiency occurs at the intersection of the demand and supply curves?

Accepted Answer

Because $$MB = MC at $$that point.

Question 11

A new pandemic causes many factories to close temporarily. What is the likely effect on the supply curve for manufactured goods?

Accepted Answer

The supply curve shifts to the left.

Question 12

If the price of bread (a complement to butter) increases, what happens to the demand for butter?

Accepted Answer

The demand for butter decreases.

Question 13

Which of the following is an example of an inferior good?

Accepted Answer

As income rises, demand for instant noodles decreases.

Question 14

Suppose the government imposes a per-unit tax of $$t on a $$good. How is the deadweight loss ($$DWL) $$from the tax calculated?

Accepted Answer

$$DWL = \frac{1}{2} 	imes t 	imes (Q^* - Q_t)$$

Question 15

If the number of buyers in a market increases, what happens to the demand curve?

Accepted Answer

The demand curve shifts to the right.

Question 16

A decrease in the price of a good leads to which of the following?

Accepted Answer

An increase in quantity demanded (movement along the demand curve).

Question 17

Which of the following statements about taxes is correct?

Accepted Answer

A tax is less distortionary when demand or supply is more inelastic.

Question 18

If the government sets a non-binding price ceiling in the gasoline market, what is the effect on equilibrium?

Accepted Answer

There is no effect; the market remains at equilibrium.

Question 19

Which of the following would NOT shift the supply curve for laptops?

Accepted Answer

A decrease in the price of laptops.

Question 20

Suppose the supply curve for oranges is $$Q_s = 2P - 4$$ and the demand curve is $$Q_d = 20 - 2P. $$What is the equilibrium price?

Accepted Answer

$$P = 6$$

Microeconomics Study Guide: Demand, Supply, Market Equilibrium, and Market Interventions

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