Q: Suppose the supply curve for T-shirts is linear and the market price increases from $$30 to 40. If $$the initial quantity sold is 10 and the new quantity is 15, what is the increase in producer surplus from the additional units sold?

$$Increase = \frac{1}{2} \times (15 - 10) \times (40 - 30) = 25$$

Question 1

Suppose a buyer is willing to pay $$50 for a product, but the market price is 30. $$What is the consumer surplus for this buyer?

Accepted Answer

$20

Question 2

Which formula correctly represents consumer surplus (CS)?

Accepted Answer

$$CS = WTP - P$$

Question 3

If the willingness to pay (WTP) for an iPad is $$400 and the price is 360$$, what is the consumer surplus?

Accepted Answer

$$CS = 400 - 360 = 40$$

Question 4

What does the area below the demand curve and above the price represent in welfare economics?

Accepted Answer

Consumer surplus

Question 5

If the price of a good falls, what happens to consumer surplus?

Accepted Answer

It increases

Question 6

Producer surplus is defined as:

Accepted Answer

The amount a seller is paid minus the seller's cost of production

Question 7

Which equation represents producer surplus (PS)?

Accepted Answer

$$PS = P - cost$$

Question 8

A seller's cost for a good is $$100, and the market price is 150. $$What is the producer surplus?

Accepted Answer

$$PS = 150 - 100 = 50$$

Question 9

In a competitive market, who consumes the good?

Accepted Answer

Buyers whose willingness to pay is greater than or equal to the price

Question 10

What is the total surplus in a market?

Accepted Answer

$$Total\ Surplus = Consumer\ Surplus + Producer\ Surplus$$

Question 11

If the equilibrium quantity in a market maximizes total surplus, what does this imply about the allocation of resources?

Accepted Answer

Resources are allocated efficiently

Question 12

Which of the following is a criticism of market efficiency?

Accepted Answer

It does not guarantee equality in the distribution of economic prosperity

Question 13

Market failure can occur due to:

Accepted Answer

Market power or externalities

Question 14

Adam Smith's 'invisible hand' refers to:

Accepted Answer

Self-interest leading to efficient market outcomes

Question 15

If the cost of producing an additional unit is $$35 and the value to consumers is only 20$$, what should happen to the quantity produced to maximize total surplus?

Accepted Answer

Decrease quantity produced

Question 16

Suppose the supply curve for T-shirts is linear and the market price increases from $$30 to 40. If $$the initial quantity sold is 10 and the new quantity is 15, what is the increase in producer surplus from the additional units sold?

Accepted Answer

$$Increase = \frac{1}{2} 	imes (15 - 10) 	imes (40 - 30) = 25$$

Question 17

Which sellers produce the good in a competitive market?

Accepted Answer

Sellers whose cost is less than or equal to the price

Question 18

If a market is perfectly competitive and there are no externalities, what can be said about the equilibrium outcome?

Accepted Answer

It is efficient and maximizes total surplus

Question 19

Which of the following best describes the relationship between consumer surplus and producer surplus in measuring market efficiency?

Accepted Answer

Market efficiency is maximized when the sum of consumer and producer surplus is maximized

Welfare Economics: Consumer Surplus, Producer Surplus, and Market Efficiency

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