Q: Which formula correctly calculates consumer surplus for a linear demand curve?

$$CS = \frac{1}{2} \times Q \times (WTP - P)$$

Q: Suppose the supply curve for a good is given by $$P = 2Q + 10$$, and the market price is $$P = 30. $$What is the producer surplus for $$Q = 10$$ units?

$$PS = \frac{1}{2} \times 10 \times (30 - 10) = 100$$

Question 1

Suppose the price of a concert ticket is $$50, and the demand curve shows that the marginal buyer's willingness to pay at a quantity of 20 tickets is 50. $$What is the consumer surplus at this price?

Accepted Answer

$0

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays

Question 3

If the price of a good falls from $$30 to 20$$, and the quantity demanded increases from 10 to 20 units, what is the increase in consumer surplus due to new buyers entering the market?

Accepted Answer

$50

Question 4

A supply curve reflects:

Accepted Answer

Sellers’ costs

Question 5

If the price of painting services rises from $$2,400 to 3$$,200, and the quantity supplied increases from 4 to 8, what is the increase in producer surplus due to new sellers entering the market?

Accepted Answer

$800

Question 6

Which formula correctly calculates consumer surplus for a linear demand curve?

Accepted Answer

$$CS = \frac{1}{2} 	imes Q 	imes (WTP - P)$$

Question 7

Which of the following statements about market equilibrium is TRUE?

Accepted Answer

At equilibrium, the sum of consumer and producer surplus is maximized

Question 8

A benevolent social planner wants to maximize total surplus in a market. Which equation represents total surplus?

Accepted Answer

$$Total\ Surplus = Value\ to\ buyers - Cost\ to\ sellers$$

Question 9

Which scenario would result in a market failure?

Accepted Answer

A market where buyers and sellers ignore externalities

Question 10

If a market is not perfectly competitive and some sellers have market power, what is likely to happen?

Accepted Answer

Market power can make the market inefficient by keeping price and quantity away from equilibrium

Question 11

Suppose the supply curve for a good is given by $$P = 2Q + 10$$, and the market price is $$P = 30. $$What is the producer surplus for $$Q = 10$$ units?

Accepted Answer

$$PS = \frac{1}{2} 	imes 10 	imes (30 - 10) = 100$$

Question 12

Which of the following best explains why competitive markets allocate goods efficiently?

Accepted Answer

They allocate goods to buyers who value them most and sellers who can produce at lowest cost

Question 13

If the equilibrium quantity in a market is less than the efficient quantity, what does this imply?

Accepted Answer

The value to buyers exceeds the cost to sellers for additional units

Question 14

Which of the following is an example of an externality?

Accepted Answer

A factory polluting a river, affecting nearby residents

Question 15

Suppose a market for kidneys is currently illegal, and only donations are allowed. If a market allowing payment for kidneys were established, what would likely happen to efficiency?

Accepted Answer

Efficiency would likely increase as more kidneys would be supplied and allocated to those who value them most

Question 16

Which of the following is NOT an assumption required to conclude that markets are efficient?

Accepted Answer

Sellers have market power

Question 17

If the price of a good is set above the equilibrium price, what happens to consumer and producer surplus?

Accepted Answer

Both consumer and producer surplus decrease

Question 18

Which equation represents producer surplus for a linear supply curve?

Accepted Answer

$$PS = \frac{1}{2} 	imes Q 	imes (P - MC)$$

Question 19

Which of the following is a property of efficiency in resource allocation?

Accepted Answer

Maximizing the total surplus received by all members of society

Question 20

If a market is left unfettered and competitive, according to Adam Smith’s invisible hand, what is the expected outcome?

Accepted Answer

The market will guide everyone to the best outcome judged by economic efficiency

Consumer Surplus, Producer Surplus, and Market Efficiency

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