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

$$\text{Consumer Surplus} = \frac{1}{2} \times (\text{Base}) \times (\text{Height})$$

Q: A government imposes a rent control of $$1,500 per month in a city where the equilibrium rent is 2$$,500. If the supply equation is $$Q^s = -1,000,000 + 1,300P$$, how many apartments will be rented?

$$Q^s = -1,000,000 + 1,300 \times 1,500 = 950,000$$

Question 1

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

Accepted Answer

The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.

Question 2

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 for apartments?

Accepted Answer

$$P = \frac{4,750,000 + 1,000,000}{1,300 + 1,000} = \2$$,500$

Question 3

If a government imposes a price ceiling below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage of the good, as quantity demanded exceeds quantity supplied.

Question 4

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

Accepted Answer

$$	ext{Consumer Surplus} = \frac{1}{2} 	imes (	ext{Base}) 	imes (	ext{Height})$$

Question 5

A competitive market is considered economically efficient when:

Accepted Answer

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

Question 6

If the government imposes a per-unit tax on a good, what happens to the supply curve?

Accepted Answer

It shifts upward by the amount of the tax.

Question 7

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 8

In the market for gasoline, a 10-cent-per-gallon excise tax causes the price consumers pay to rise by 8 cents and the price sellers receive to fall by 2 cents. What is the tax incidence?

Accepted Answer

Consumers pay 80% of the tax, sellers pay 20%.

Question 9

Which of the following would increase producer surplus in a market?

Accepted Answer

An increase in the market price.

Question 10

Suppose a price floor is set above the equilibrium price in the wheat market. What is the most likely result?

Accepted Answer

A surplus of wheat.

Question 11

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

Accepted Answer

Consumers.

Question 12

Which of the following is a real-world example of a price ceiling?

Accepted Answer

Rent control in major cities.

Question 13

A government imposes a rent control of $$1,500 per month in a city where the equilibrium rent is 2$$,500. If the supply equation is $$Q^s = -1,000,000 + 1,300P$$, how many apartments will be rented?

Accepted Answer

$$Q^s = -1,000,000 + 1,300 	imes 1,500 = 950,000$$

Question 14

Which of the following statements about the effect of a price ceiling during an emergency (such as the COVID-19 pandemic) is most accurate?

Accepted Answer

It creates a shortage, as the quantity demanded exceeds the quantity supplied.

Question 15

Which equation represents the equilibrium condition in a market?

Accepted Answer

$$Q^d = Q^s$$

Question 16

If a government imposes a minimum wage above the equilibrium wage, what is the likely effect on employment?

Accepted Answer

Employment will decrease, resulting in deadweight loss.

Question 17

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

Accepted Answer

The sum of consumer surplus and producer surplus.

Question 18

In the context of taxes, what is meant by 'excess burden'?

Accepted Answer

The deadweight loss from a tax.

Question 19

Which of the following is NOT a likely result of government-imposed price controls?

Accepted Answer

An increase in the total economic surplus.

Question 20

Suppose the supply curve for a good is relatively steep and the demand curve is relatively flat. Who will bear most of the burden of a tax imposed on this good?

Accepted Answer

Producers.

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

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