Q: Which formula correctly calculates total economic surplus in a market?

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

Question 1

Which of the following best describes consumer surplus?

Accepted Answer

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

Question 2

Suppose the market price for a cup of chai tea is $$3.50. Theresa is willing to pay 6.00$$, Tom $$5.00, Terri 4.00$$, and Tim $3.00. What is the total consumer surplus in this market?

Accepted Answer

$$2.50 + 1.50$$ + $$0.50 = 4.50$$

Question 3

Producer surplus is best defined as:

Accepted Answer

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

Question 4

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

Accepted Answer

Marginal benefit equals marginal cost.

Question 5

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

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 6

Which formula correctly calculates total economic surplus in a market?

Accepted Answer

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

Question 7

A deadweight loss in a market is:

Accepted Answer

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

Question 8

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

Accepted Answer

There will be a surplus of wheat because quantity supplied will exceed quantity demanded.

Question 9

Suppose a $$1.00 per-unit tax is imposed on cigarettes. If the equilibrium price before the tax was 6.00 $$and the new price consumers pay is $6.90, what price do producers receive after the tax?

Accepted Answer

$5.90

Question 10

Which of the following statements about tax incidence is correct?

Accepted Answer

The actual burden of a tax depends on the relative elasticities of demand and supply, not on who is legally required to pay the tax.

Question 11

If demand is relatively inelastic compared to supply, who bears most of the burden of a tax?

Accepted Answer

Buyers (consumers)

Question 12

During the COVID-19 pandemic, the price of hand sanitizer increased sharply. If the government had imposed a price ceiling at the pre-pandemic price, what would have been the likely result in the short run?

Accepted Answer

A shortage of hand sanitizer, as quantity demanded would exceed quantity supplied.

Question 13

Which of the following is an example of a price floor?

Accepted Answer

Minimum wage laws

Question 14

Suppose the government imposes a per-unit tax on gasoline. The price consumers pay rises by 8 cents, and the price sellers receive falls by 2 cents. What is the total tax per unit?

Accepted Answer

$0.10

Question 15

Which of the following best describes economic efficiency in a market?

Accepted Answer

A market outcome in which the marginal benefit to consumers of the last unit produced equals its marginal cost of production, and the sum of consumer and producer surplus is maximized.

Question 16

If a minimum wage is set above the equilibrium wage, what is a likely consequence in the labor market?

Accepted Answer

Unemployment will increase as the quantity of labor supplied exceeds the quantity demanded.

Question 17

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

Accepted Answer

"Price ceilings are bad because they reduce economic efficiency."

Question 18

Suppose Uber's demand curve is estimated and the average price per ride is $$13.30, with 111 million rides taken. If the maximum price consumers are willing to pay is 65.17$$, what is the annual consumer surplus (using the area of a triangle)?

Accepted Answer

$$\frac{1}{2} 	imes 111,000,000 	imes (65.17 - 13.30) = 2.88 	ext{ billion}$$

Question 19

Which of the following is true about the effect of a per-unit tax on a market?

Accepted Answer

It creates a deadweight loss unless demand or supply is perfectly inelastic.

Question 20

In the context of the Social Security (FICA) tax, why do workers bear most of the tax burden?

Accepted Answer

Because the supply of labor is relatively inelastic compared to the demand for labor.

Economic Efficiency, Government Price Setting, and Taxes: Consumer and Producer Surplus

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