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

$$\text{Consumer Surplus} = \frac{1}{2} \times (Q^*) \times (P_{max} - P^*)$$

Question 1

Which of the following best describes consumer surplus in a market?

Accepted Answer

The difference between the highest price a consumer is willing to pay for a good and the actual price the consumer pays.

Question 2

Suppose the market price for chai tea is $$3.50 per cup. Theresa is willing to pay 6.00 $$for a cup. What is Theresa's consumer surplus?

Accepted Answer

$$6.00 - 3.50$$ = $2.50

Question 3

Producer surplus is maximized in a competitive market when:

Accepted Answer

The marginal benefit to consumers equals the marginal cost of production.

Question 4

If a government imposes a price ceiling below the equilibrium price, what is the most likely outcome?

Accepted Answer

A shortage of the good.

Question 5

Deadweight loss in a market is best described as:

Accepted Answer

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

Question 6

A per-unit tax on a good will cause the supply curve to:

Accepted Answer

Shift up by the amount of the tax.

Question 7

In the market for gasoline, a 10-cent-per-gallon tax is imposed. If the price consumers pay rises by 8 cents and the price sellers receive falls by 2 cents, what is the tax incidence?

Accepted Answer

Consumers pay 80% of the tax and sellers pay 20%.

Question 8

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

Accepted Answer

$$	ext{Consumer Surplus} = \frac{1}{2} 	imes (Q^*) 	imes (P_{max} - P^*)$$

Question 9

If the government sets a price floor above the equilibrium price in the wheat market, what will happen?

Accepted Answer

There will be a surplus of wheat.

Question 10

Which of the following statements about tax incidence is correct?

Accepted Answer

Tax incidence depends on the relative elasticities of demand and supply.

Question 11

Suppose a minimum wage is set above the equilibrium wage. What is a likely consequence in the labor market?

Accepted Answer

Unemployment increases due to a surplus of labor.

Question 12

During an emergency, if the government imposes a price ceiling on hand sanitizer, what is the most likely short-run effect?

Accepted Answer

A shortage of hand sanitizer.

Question 13

Economic efficiency in a market is achieved when:

Accepted Answer

The marginal benefit to consumers of the last unit produced equals its marginal cost of production.

Question 14

If demand for a product is inelastic and a tax is imposed, who bears most of the tax burden?

Accepted Answer

Consumers.

Question 15

Which equation represents producer surplus for a firm?

Accepted Answer

$$	ext{Producer Surplus} = 	ext{Total Revenue} - 	ext{Total Variable Cost}$$

Question 16

A deadweight loss from a tax is minimized when:

Accepted Answer

The tax is imposed on goods with inelastic demand or supply.

Question 17

In the Uber ride-sharing market, economists estimated consumer surplus by calculating the area:

Accepted Answer

Below the demand curve and above the price paid.

Question 18

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

Accepted Answer

Whether price controls are good or bad depends on our values and judgments.

Question 19

If a government imposes a price floor in the wheat market at $$8.00 per bushel when the equilibrium price is 6.50$$, what is the result?

Accepted Answer

A surplus of wheat and a deadweight loss.

Question 20

Which of the following best explains why illegal markets may arise under rent control?

Accepted Answer

Rent control creates a shortage, leading some landlords to charge above the legal maximum.

Economic Efficiency, Government Price Setting, and Taxes: Microeconomics Chapter 4 Study Notes

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