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

Suppose the market for chai tea is in equilibrium at a price of $$2.00 per cup and a quantity of 15,000 cups per day. If the government imposes a price floor at 2.50 $$per cup, which of the following will most likely occur?

Accepted Answer

A surplus of chai tea, as quantity supplied exceeds quantity demanded.

Question 2

Consumer surplus is best described as:

Accepted Answer

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

Question 3

If the marginal benefit of the last unit produced is less than the marginal cost, what does this imply about the market outcome?

Accepted Answer

The market is producing too much output.

Question 4

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 5

A price ceiling set below the equilibrium price will generally result in:

Accepted Answer

A shortage of the good.

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 is defined as:

Accepted Answer

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

Question 8

Suppose the demand for gasoline is relatively steep (inelastic) and the supply is relatively flat (elastic). If a tax is imposed, who bears most of the tax burden?

Accepted Answer

Consumers bear most of the burden.

Question 9

Which of the following best describes a price floor?

Accepted Answer

A legally determined minimum price that sellers may receive.

Question 10

If a $$1.00 per-pack tax is imposed on cigarettes and the equilibrium price rises from 6.00 to$$ $6.90, what price do producers effectively receive after the tax?

Accepted Answer

$5.90

Question 11

Which of the following is NOT a likely result of a binding rent ceiling?

Accepted Answer

An increase in the quantity of apartments supplied.

Question 12

Producer surplus is maximized when:

Accepted Answer

The market is in competitive equilibrium.

Question 13

Which of the following statements about tax incidence is correct?

Accepted Answer

The burden of the tax depends on the relative elasticities of supply and demand.

Question 14

Suppose the government imposes a minimum wage above the equilibrium wage. According to economic theory, what is a likely consequence?

Accepted Answer

A deadweight loss due to fewer jobs.

Question 15

If the area under the demand curve and above the market price represents consumer surplus, how would you calculate it for a linear demand curve?

Accepted Answer

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

Question 16

Which of the following is an example of a normative economic statement regarding price controls?

Accepted Answer

The government should impose rent controls to help renters.

Question 17

If a per-unit tax is imposed and the supply curve is perfectly elastic, who bears the entire burden of the tax?

Accepted Answer

Consumers

Question 18

Which of the following best explains why deadweight loss occurs when a market is not in equilibrium?

Accepted Answer

Some mutually beneficial trades between buyers and sellers do not occur.

Question 19

During the Covid-19 pandemic, the price of hand sanitizer increased sharply. If the government imposed a price ceiling at the pre-pandemic price, what would be the likely short-run effect?

Accepted Answer

A shortage of hand sanitizer.

Question 20

Which of the following is the correct formula for producer surplus in a market with a linear supply curve?

Accepted Answer

$$	ext{Producer Surplus} = \frac{1}{2} 	imes 	ext{Base} 	imes 	ext{Height}$$

Economic Efficiency, Government Price Setting, and Taxes

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