Q: Suppose the market price for a good is $$30. The demand curve is linear, with a vertical intercept at 60 $$and a horizontal intercept at Q = 30. What is the total consumer surplus in the market?

$$\frac{1}{2} \times 15 \times (60 - 30) = 225$

Q: A seller's cost to produce a good is $$100. If the market price is 250$$, what is the producer surplus for this seller?

$$PS = P - \text{cost} = 250 - 100 = 150$

Q: Suppose the supply curve for T-shirts has a vertical intercept at $$15 and passes through (Q = 25, P = 40). If the market price is 40$$, what is the total producer surplus?

$$\frac{1}{2} \times 25 \times (40 - 15) = 312.50$

Q: A benevolent social planner wants to maximize total surplus in a market. Which formula should they use?

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

Question 1

Suppose the market price for a good is $$30. The demand curve is linear, with a vertical intercept at 60 $$and a horizontal intercept at Q = 30. What is the total consumer surplus in the market?

Accepted Answer

$$\frac{1}{2} 	imes 15 	imes (60 - 30) = 225$

Question 2

A seller's cost to produce a good is $$100. If the market price is 250$$, what is the producer surplus for this seller?

Accepted Answer

$$PS = P - 	ext{cost} = 250 - 100 = 150$

Question 3

Which of the following best describes the area representing total producer surplus in a supply and demand diagram?

Accepted Answer

The area above the supply curve and below the price, from zero to the quantity sold

Question 4

If the equilibrium quantity in a market is 20 units, the value to buyers of the 21st unit is $$25, and the cost to sellers of the 21st unit is 40$$, what should happen to total surplus if production increases from 20 to 21 units?

Accepted Answer

Total surplus decreases by $15

Question 5

Which of the following statements about market equilibrium is correct according to welfare economics?

Accepted Answer

Market equilibrium maximizes the sum of consumer and producer surplus

Question 6

A competitive market allocates goods to buyers who:

Accepted Answer

Have the highest willingness to pay

Question 7

Suppose the supply curve for T-shirts has a vertical intercept at $$15 and passes through (Q = 25, P = 40). If the market price is 40$$, what is the total producer surplus?

Accepted Answer

$$\frac{1}{2} 	imes 25 	imes (40 - 15) = 312.50$

Question 8

Which of the following is NOT an assumption required for market equilibrium to be efficient?

Accepted Answer

There is significant market power

Question 9

If a market is not perfectly competitive and one seller controls the price, what is likely to occur?

Accepted Answer

Market failure due to market power

Question 10

A benevolent social planner wants to maximize total surplus in a market. Which formula should they use?

Accepted Answer

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

Question 11

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

Accepted Answer

Consumer surplus increases

Question 12

Which of the following best describes the concept of 'willingness to sell'?

Accepted Answer

The lowest price a seller will accept for a good, equal to the seller's cost

Question 13

Suppose a government introduces a policy that redistributes income so that every member of society receives the same amount. Which concept does this policy most directly address?

Accepted Answer

Equality

Question 14

If the area below the demand curve and above the price line increases, what does this indicate?

Accepted Answer

Consumer surplus has increased

Question 15

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

Accepted Answer

A factory pollutes a river, affecting people not involved in the market

Question 16

If the market price is set above equilibrium, what is the likely effect on total surplus?

Accepted Answer

Total surplus decreases due to a reduction in quantity traded

Question 17

A market for kidneys is currently illegal. If it were legalized and became competitive, what would likely happen to efficiency?

Accepted Answer

Efficiency would increase as kidneys are allocated to those who value them most

Question 18

Which of the following is the correct formula for consumer surplus for an individual buyer?

Accepted Answer

$$CS = WTP - P$$

Question 19

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

Accepted Answer

The quantity supplied equals the quantity demanded

Question 20

Which of the following best explains why the demand curve is downward sloping in the context of consumer surplus?

Accepted Answer

Buyers with higher willingness to pay purchase first, and as price falls, more buyers with lower willingness to pay enter the market

Consumers, Producers, and the Efficiency of Markets

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