Q: Which formula correctly represents producer surplus for a single transaction?

$$\text{Producer Surplus} = \text{Price} - \text{Marginal Cost}$$

Q: Which of the following equations correctly represents total economic surplus in a market?

$$\text{Economic Surplus} = \text{Consumer Surplus} + \text{Producer Surplus}$$

Question 1

Which of the following best describes the difference between positive and normative analysis in economics?

Accepted Answer

Positive analysis describes and predicts what is happening, while normative analysis prescribes what should happen based on value judgments.

Question 2

Suppose the government is considering a policy to subsidize flu shots. Which of the following is a positive statement about this policy?

Accepted Answer

Subsidizing flu shots will increase the number of people who get vaccinated.

Question 3

Economic surplus is defined as:

Accepted Answer

The total benefits minus total costs.

Question 4

If the marginal benefit of buying a sweater is $$50 and the price is 40$$, what is the consumer surplus from this transaction?

Accepted Answer

$10

Question 5

Which formula correctly represents producer surplus for a single transaction?

Accepted Answer

$$	ext{Producer Surplus} = 	ext{Price} - 	ext{Marginal Cost}$$

Question 6

A market is considered economically efficient if:

Accepted Answer

It produces the largest possible economic surplus.

Question 7

Suppose a market for jeans is in equilibrium at a price of $$50 and a quantity of 200 pairs. The marginal benefit and marginal cost of the 200th pair are both 50. $$What would happen to economic surplus if the government imposed a price ceiling of $40?

Accepted Answer

Economic surplus would decrease due to underproduction and deadweight loss.

Question 8

Which of the following is NOT a source of market failure?

Accepted Answer

Perfect competition

Question 9

Deadweight loss is best described as:

Accepted Answer

The reduction in economic surplus that results from not producing at the efficient quantity.

Question 10

If a market has negative externalities (e.g., pollution), what is the likely result if the externality is not corrected?

Accepted Answer

The market will produce more than the efficient quantity.

Question 11

Suppose the marginal benefit of the 10th unit of a good is $$5, and the marginal cost is 7. $$According to the rational rule for sellers, what should happen?

Accepted Answer

Produce fewer units.

Question 12

Which of the following equations correctly represents total economic surplus in a market?

Accepted Answer

$$	ext{Economic Surplus} = 	ext{Consumer Surplus} + 	ext{Producer Surplus}$$

Question 13

A government imposes a tax on cigarettes to reduce smoking. Which of the following best explains the economic rationale for this policy?

Accepted Answer

To correct for a negative externality and reduce deadweight loss.

Question 14

If a market is perfectly competitive and there are no externalities, information problems, or government interventions, what can we conclude about the allocation of goods?

Accepted Answer

Goods are allocated to those with the highest marginal benefit.

Question 15

Which of the following statements about equity and efficiency is correct?

Accepted Answer

Efficiency is only concerned with the size of the economic pie, while equity is concerned with how the pie is divided.

Question 16

Suppose a market is producing at a quantity where marginal benefit exceeds marginal cost. What should happen to increase economic surplus?

Accepted Answer

Increase production.

Question 17

A monopolist restricts output below the competitive equilibrium. What is the likely effect on economic surplus?

Accepted Answer

Economic surplus decreases due to deadweight loss.

Question 18

Which of the following is an example of a government failure?

Accepted Answer

A price ceiling that leads to shortages and reduces economic surplus.

Question 19

If the area under the demand curve and above the price line for a market is $$500, and the area above the supply curve and below the price line is 300$$, what is the total economic surplus?

Accepted Answer

$800

Question 20

Which of the following best describes deadweight loss in a market with a binding price floor?

Accepted Answer

It is the loss of economic surplus due to underproduction.

Chapter 7: Efficiency, Equity, and Market Failure – Microeconomics Study Notes

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