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

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

Q: Which equation represents the calculation of deadweight loss (DWL) from a tax?

$$\frac{1}{2} \cdot \text{tax amount} \cdot \text{reduction in quantity}$$

Question 1

In the context of the Venezuelan food riots and the rise of Uber in the United States, what is the common economic theme illustrated by both situations?

Accepted Answer

Both involve government attempts to alter market prices, leading to unintended consequences.

Question 2

Consumer Surplus is best defined as:

Accepted Answer

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

Question 3

If Theresa is willing to pay $$6.00 for a cup of chai tea but the market price is 3.50$$, what is her consumer surplus?

Accepted Answer

$$6.00 \ - \ 3.50$$ \ = \ $2.50

Question 4

Which formula correctly calculates total consumer surplus in a market with a linear demand curve?

Accepted Answer

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

Question 5

Producer Surplus is most accurately described as:

Accepted Answer

The difference between the price received and the marginal cost of production.

Question 6

A market is considered economically efficient when:

Accepted Answer

Marginal Benefit equals Marginal Cost and Economic Surplus is maximized.

Question 7

What happens to economic surplus when a market is not in equilibrium due to a price floor or price ceiling?

Accepted Answer

Economic surplus decreases and deadweight loss is created.

Question 8

If the government imposes a price floor above the equilibrium price, what is the likely outcome?

Accepted Answer

A surplus of goods and deadweight loss.

Question 9

Suppose a rent ceiling is set below the equilibrium rent. What is the immediate effect on the apartment market?

Accepted Answer

A shortage of apartments and deadweight loss.

Question 10

Which equation represents the calculation of deadweight loss (DWL) from a tax?

Accepted Answer

$$\frac{1}{2} \cdot 	ext{tax amount} \cdot 	ext{reduction in quantity}$$

Question 11

In the market for gasoline, a $$0.10 per-gallon tax causes the price consumers pay to rise from 2.50 to$$ $2.58. What portion of the tax is paid by consumers?

Accepted Answer

$$0.08 	ext{ per gallon}$$

Question 12

What determines the actual division of the burden of a tax (tax incidence) between buyers and sellers?

Accepted Answer

The relative slopes of the demand and supply curves.

Question 13

If the demand curve is steep, who bears most of the burden of a tax?

Accepted Answer

Consumers bear most of the burden.

Question 14

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

Accepted Answer

Minimum wage laws.

Question 15

What is the effect of a price ceiling during an emergency, such as the Covid-19 pandemic, on products like hand sanitizer?

Accepted Answer

A shortage of the product and reduced economic efficiency.

Question 16

Which formula represents the calculation of tax revenue collected by the government from a per-unit tax?

Accepted Answer

$$	ext{tax amount} 	imes 	ext{quantity sold}$$

Question 17

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

Accepted Answer

The supply curve shifts upward by the amount of the tax.

Question 18

Which of the following best describes deadweight loss?

Accepted Answer

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Question 19

In the context of minimum wage policy, what is a major argument against raising the minimum wage?

Accepted Answer

It may result in fewer jobs and impose large costs on small businesses.

Economic Efficiency, Government Price Setting, and Taxes: Study Notes

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