Q: Which equation correctly represents the area of consumer surplus in a market with a linear demand curve?

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

Question 1

Suppose the government imposes a price ceiling on gasoline at $$0.57 per gallon when the equilibrium price is 1.50 $$per gallon. What is the most likely immediate effect in the market for gasoline?

Accepted Answer

A shortage of gasoline will occur because the quantity demanded exceeds the quantity supplied.

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the maximum amount a consumer is willing to pay and the market price.

Question 3

If the supply of wheat shifts to the left due to a natural disaster, what happens to the equilibrium price and quantity in the wheat market?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Question 4

A price floor is set above the equilibrium price in the labor market. What is the likely result?

Accepted Answer

A surplus of labor (unemployment) will occur.

Question 5

Which equation correctly represents the area of consumer surplus in a market with a linear demand curve?

Accepted Answer

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

Question 6

What is the deadweight loss in a market, and when does it occur?

Accepted Answer

The total loss of producer and consumer surplus from underproduction or overproduction.

Question 7

If the government imposes a tariff on imported oil, what is the most likely effect on domestic oil prices and quantities?

Accepted Answer

Domestic oil prices increase and domestic production increases.

Question 8

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

Accepted Answer

A surplus of the good.

Question 9

Suppose the market for concert tickets is fixed at 20,000 seats, but the face value price is set at $$50, while the equilibrium price is 300. $$What is the likely outcome?

Accepted Answer

There will be excess demand and possibly a black market for tickets.

Question 10

Which of the following best explains why used car prices increased during the COVID-19 pandemic?

Accepted Answer

A decrease in the supply of new cars due to supply chain disruptions, increasing demand for used cars.

Question 11

What is the opportunity cost of attending a free Shakespeare in the Park performance if you must wait in line for 3 hours?

Accepted Answer

The value of the next best alternative use of your 3 hours.

Question 12

Which of the following is a source of market failure that can lead to deadweight loss?

Accepted Answer

Monopoly power.

Question 13

If a government distributes ration coupons for gasoline during a shortage, what is a likely unintended consequence?

Accepted Answer

A black market may develop where coupons are traded at higher prices.

Question 14

Which formula correctly represents producer surplus in a market with a linear supply curve?

Accepted Answer

$$PS = \frac{1}{2} 	imes (Q^*) 	imes (P^* - P_{min})$$

Question 15

A minimum wage is an example of which of the following?

Accepted Answer

A price floor.

Question 16

If a museum offers free admission on a weekday and most visitors are senior citizens, what economic concept explains this observation?

Accepted Answer

Senior citizens have a lower opportunity cost of time.

Question 17

Which of the following is true about the allocation of resources in a competitive market?

Accepted Answer

Resources are allocated to maximize total producer and consumer surplus.

Question 18

If a market is producing more than the equilibrium quantity, what is the result?

Accepted Answer

There is a deadweight loss due to overproduction.

Question 19

Which of the following is an example of a nonprice rationing mechanism?

Accepted Answer

Queuing (waiting in line).

Question 20

What happens to total producer and consumer surplus when a market is at equilibrium?

Accepted Answer

It is maximized.

Demand and Supply Applications: Price Controls, Market Efficiency, and Tariffs

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