Q: Which formula correctly calculates consumer surplus?

$$CS = \frac{1}{2} \times (Q_{eq}) \times (P_{max} - P_{eq})$$

Question 1

Which of the following best describes marginal social benefit (MSB) in the context of resource allocation?

Accepted Answer

The additional benefit to society from consuming one more unit of a good, including both private and external benefits.

Question 2

Suppose the government imposes a minimum wage above the equilibrium wage. What is the most likely effect on the labor market?

Accepted Answer

There will be a surplus of labor, resulting in unemployment as firms demand less labor at the higher wage.

Question 3

If a tax is imposed on a good, how does it affect consumer and producer surplus?

Accepted Answer

Consumer surplus decreases, producer surplus decreases, and a portion of the surplus is transferred to the government as tax revenue.

Question 4

Given the demand function $$Q_d = 100 - 2P$$ and the supply function $$Q_s = 20 + 3P$$, what is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 5

A production quota is set below the equilibrium quantity. What is the likely outcome in the market?

Accepted Answer

There will be a shortage of the good, and the price will rise above equilibrium.

Question 6

Which formula correctly calculates consumer surplus?

Accepted Answer

$$CS = \frac{1}{2} 	imes (Q_{eq}) 	imes (P_{max} - P_{eq})$$

Question 7

If a country imposes a tariff on imported goods, what is the most likely effect on domestic consumer surplus?

Accepted Answer

Domestic consumer surplus will decrease as prices rise.

Question 8

Which of the following best describes market efficiency?

Accepted Answer

When the sum of consumer and producer surplus is maximized and resources are allocated optimally.

Question 9

A tax wedge is created when a tax is imposed on a good. How is the tax wedge calculated?

Accepted Answer

$$Tax\ Wedge = P_{buyer} - P_{seller}$$

Question 10

Suppose a consumer faces the following marginal utility per dollar for two goods: $$MU_A/P_A = 10$$ and $$MU_B/P_B = 8. $$What should the consumer do to maximize utility?

Accepted Answer

Buy more of good A and less of good B.

Question 11

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

Accepted Answer

A market where resources are allocated inefficiently due to externalities.

Question 12

If the marginal social cost (MSC) of producing a good exceeds the marginal social benefit (MSB), what should happen to the level of production?

Accepted Answer

Production should decrease to maximize social welfare.

Question 13

Which equation represents total utility (TU) if marginal utility (MU) for each unit is constant and equal to $$5$$, and the consumer buys $$10$$ units?

Accepted Answer

$$TU = 5 	imes 10$$

Question 14

A country exports wheat and imports cars. If the world price of wheat falls, who is most likely to lose in this scenario?

Accepted Answer

Domestic wheat producers.

Question 15

Which of the following best describes the concept of 'choosing at the margin'?

Accepted Answer

Making decisions based on the additional cost and benefit of one more unit.

Question 16

If a subsidy is given to producers, what is the most likely effect on the market equilibrium?

Accepted Answer

The equilibrium price will fall and quantity will rise.

Question 17

Suppose the marginal utility per dollar spent on apples is $$MU_A/P_A = 12$$ and on oranges is $$MU_O/P_O = 12. $$What does this imply about the consumer's allocation?

Accepted Answer

The consumer is maximizing utility by allocating spending efficiently between apples and oranges.

Question 18

Which of the following is NOT a result of imposing a tariff?

Accepted Answer

Increase in total welfare for the importing country.

Question 19

If the government sets a production quota above the equilibrium quantity, what is the likely effect?

Accepted Answer

No effect, as the market will produce at equilibrium quantity.

Question 20

Which equation represents producer surplus?

Accepted Answer

$$PS = \frac{1}{2} 	imes (Q_{eq}) 	imes (P_{eq} - P_{min})$$

Microeconomics Second Exam Study Guide: Key Concepts and Applications

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