Q: What is the formula for calculating the area of consumer surplus in a market with a linear demand curve?

$$\frac{1}{2} \times \text{base} \times \text{height}$$

Question 1

Suppose the demand for apartments in New York City is given by $$Q^D = 4,750,000 - 1,000P$$ and the supply is $$Q^S = -1,000,000 + 1,300P. $$What is the equilibrium price of apartments?

Accepted Answer

$$P = 2,500$$

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay and the actual price paid.

Question 3

A government imposes a price ceiling on apartments at $$1,500$$ when the equilibrium price is $$2,500. $$What is the likely result?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 4

If the supply curve for a good shifts upward by the amount of a per-unit tax, what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases and the price paid by consumers increases.

Question 5

Which of the following is true about deadweight loss?

Accepted Answer

It represents the reduction in economic surplus when a market is not in competitive equilibrium.

Question 6

A price floor set above the equilibrium price will:

Accepted Answer

Create a surplus in the market.

Question 7

If the government imposes a $$10-$$cent-per-gallon tax on gasoline and the price consumers pay rises by $$8$$ cents, who bears most of the tax burden?

Accepted Answer

Consumers bear most of the tax burden.

Question 8

Which of the following best describes producer surplus?

Accepted Answer

The difference between the price a firm actually receives and the lowest price it would accept.

Question 9

What is the formula for calculating the area of consumer surplus in a market with a linear demand curve?

Accepted Answer

$$\frac{1}{2} 	imes 	ext{base} 	imes 	ext{height}$$

Question 10

If a market is in competitive equilibrium, which of the following is true?

Accepted Answer

The marginal benefit to consumers of the last unit produced equals its marginal cost of production.

Question 11

Suppose a per-unit tax is imposed on a good. What determines the incidence of the tax between buyers and sellers?

Accepted Answer

The relative elasticities of demand and supply.

Question 12

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

Accepted Answer

Rent control in a city.

Question 13

If a price ceiling is set below the equilibrium price, what will happen to producer surplus?

Accepted Answer

Producer surplus will decrease.

Question 14

Which of the following statements about economic efficiency is correct?

Accepted Answer

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

Question 15

During the COVID-19 pandemic, some states considered imposing price ceilings on hand sanitizer. What is a likely unintended consequence of such a policy?

Accepted Answer

A shortage of hand sanitizer, as the quantity demanded exceeds the quantity supplied.

Question 16

Suppose the government imposes a minimum wage above the equilibrium wage. According to standard economic theory, what is the most likely effect?

Accepted Answer

Unemployment will increase as the quantity of labor supplied exceeds the quantity demanded.

Question 17

If the demand for a good is very inelastic and a tax is imposed, who will bear most of the tax burden?

Accepted Answer

Buyers will bear most of the tax burden.

Question 18

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

Accepted Answer

"Price ceilings are bad because they reduce economic efficiency."

Question 19

Suppose the government imposes a price floor in the wheat market above the equilibrium price. What will happen to the quantity supplied and the quantity demanded?

Accepted Answer

Quantity supplied will exceed quantity demanded, resulting in a surplus.

Question 20

Which of the following best describes the concept of economic surplus?

Accepted Answer

The sum of consumer surplus and producer surplus.

Economic Efficiency, Government Price Setting, and Taxes – Chapter 4 Study Notes

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