Question 1

Which of the following best describes consumer surplus in a market?

Accepted Answer

The area below the demand curve but above the price, representing the difference between what consumers are willing to pay and what they actually pay.

Question 2

Suppose the government sets a price floor above the equilibrium price in the wheat market. What is the most likely outcome?

Accepted Answer

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

Question 3

If a tax is imposed on producers, which of the following will occur in the market?

Accepted Answer

The supply curve shifts left by the amount of the tax.

Question 4

Deadweight loss in a market is best described as:

Accepted Answer

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

Question 5

Which formula correctly represents economic surplus in a market?

Accepted Answer

$$Economic\ Surplus = Consumer\ Surplus + Producer\ Surplus$$

Question 6

A price ceiling set below the equilibrium price will most likely result in:

Accepted Answer

A shortage, as quantity demanded exceeds quantity supplied.

Question 7

In the labor market, what is the effect of a minimum wage set above the equilibrium wage?

Accepted Answer

It creates excess supply of labor (unemployment).

Question 8

Which of the following statements about tax incidence is correct?

Accepted Answer

Tax incidence depends on the relative elasticities of supply and demand.

Question 9

If the government imposes a tax on buyers, what happens to the demand curve?

Accepted Answer

It shifts left by the amount of the tax.

Question 10

Which of the following is NOT a likely effect of rent control (a price ceiling on housing)?

Accepted Answer

Increase in the quality of housing.

Question 11

Suppose a competitive market is in equilibrium. What is true about the marginal benefit and marginal cost of the last unit traded?

Accepted Answer

$$Marginal\ Benefit = Marginal\ Cost$$

Question 12

A subsidy paid to buyers of a good will most likely:

Accepted Answer

Shift the demand curve to the right.

Question 13

Which of the following best describes producer surplus?

Accepted Answer

The area above the supply curve but below the price, representing the difference between the price received and the minimum price suppliers are willing to accept.

Question 14

If a tax is imposed in a market, which of the following will NOT occur?

Accepted Answer

The price sellers receive increases.

Question 15

Which of the following equations represents the deadweight loss caused by a tax?

Accepted Answer

$$Deadweight\ Loss = Economic\ Surplus_{without\ tax} - Economic\ Surplus_{with\ tax}$$

Question 16

Which of the following is a secondary effect of price ceilings on pharmaceuticals?

Accepted Answer

Development of shortages and black markets.

Question 17

In a market with a binding price floor, which of the following is true?

Accepted Answer

Quantity supplied exceeds quantity demanded.

Question 18

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

Accepted Answer

Because the tax prevents some mutually beneficial trades from occurring.

Question 19

If the government pays a subsidy to sellers, what is the most likely effect on the market?

Accepted Answer

The supply curve shifts right.

Question 20

Which of the following is true about economic efficiency in a competitive market?

Accepted Answer

Economic efficiency is achieved when the sum of consumer and producer surplus is maximized.

Economic Efficiency, Government Price Setting, and Taxes: Study Notes

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