Q: What is the formula for calculating consumer surplus in a market with a linear demand curve?

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

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 demand for apartments in New York City is given by $Q_D = 4,750,000 - 1,000P$ and the supply is $Q_S = -1,000,000 + 1,300P$. What is the equilibrium price?

Accepted Answer

$P = \frac{5,750,000}{2,300} = 2,500$

Question 3

What is the economic effect of a price ceiling set below the equilibrium price?

Accepted Answer

It leads to a shortage, as quantity demanded exceeds quantity supplied.

Question 4

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 5

Which of the following statements about deadweight loss is correct?

Accepted Answer

Deadweight loss is zero at the competitive equilibrium.

Question 6

A market is considered economically efficient if:

Accepted Answer

The sum of consumer surplus and producer surplus is at a maximum.

Question 7

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

Accepted Answer

A surplus of labor (unemployment).

Question 8

Which of the following best explains tax incidence?

Accepted Answer

It is the actual division of the burden of a tax between buyers and sellers, depending on the relative elasticities of demand and supply.

Question 9

Given the demand curve $Q_D = 4,750,000 - 1,000P$ and the supply curve $Q_S = -1,000,000 + 1,300P$, what is the equilibrium quantity?

Accepted Answer

$Q = 2,250,000$

Question 10

If the government imposes a rent ceiling below the equilibrium rent, what happens to producer surplus?

Accepted Answer

Producer surplus decreases.

Question 11

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

Accepted Answer

Minimum wage laws.

Question 12

Suppose a $1.00$ per-unit tax is imposed on cigarettes, raising the price consumers pay from $6.00$ to $6.90$ per pack. How much of the tax is paid by consumers?

Accepted Answer

$0.90$

Question 13

What is the formula for calculating consumer surplus in a market with a linear demand curve?

Accepted Answer

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

Question 14

Which of the following is NOT a likely consequence of a price ceiling?

Accepted Answer

A surplus of the good.

Question 15

If the demand for gasoline is relatively inelastic, who bears most of the burden of a gasoline tax?

Accepted Answer

Consumers.

Question 16

Which of the following best describes producer surplus?

Accepted Answer

The difference between the lowest price a firm would accept and the price it actually receives.

Question 17

A deadweight loss from a tax is also known as:

Accepted Answer

Excess burden.

Question 18

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

Accepted Answer

The benefits of price controls may outweigh the losses, depending on societal values.

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

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