Q: Which of the following equations 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

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

$4.50

Question 3

Producer surplus is maximized in a competitive market when:

Accepted Answer

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

Question 4

A deadweight loss occurs when:

Accepted Answer

The market is not in equilibrium, resulting in a reduction of economic surplus.

Question 5

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

Accepted Answer

A shortage of the good.

Question 6

Which of the following equations 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 7

A $$1.00 per-pack tax is imposed on cigarettes. Before the tax, the equilibrium price is 6.00 $$and 4 billion packs are sold. After the tax, the price paid by consumers is $$6.90 and the price received by producers is 5.90. $$What is the tax incidence on consumers?

Accepted Answer

$0.90 per pack

Question 8

Which of the following best explains why the legal obligation to pay a tax does not determine the tax incidence?

Accepted Answer

The burden of the tax is determined by the relative elasticities of supply and demand.

Question 9

If the demand for a good is very inelastic and the supply is very elastic, who bears most of the burden of a per-unit tax?

Accepted Answer

Consumers

Question 10

Suppose the supply curve for apartments in a city is $$Q_s = 0.5P - 200$$ and the demand curve is $$Q_d = 1000 - P. $$What is the equilibrium price and quantity?

Accepted Answer

Question 11

A government imposes a price floor above the equilibrium price in the wheat market. What is the most likely result?

Accepted Answer

A surplus of wheat

Question 12

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

Accepted Answer

Price controls are bad for society.

Question 13

During the COVID-19 pandemic, the price of hand sanitizer increased sharply due to a surge in demand. If the government imposed a price ceiling at the pre-pandemic price, what would be the likely short-run effect?

Accepted Answer

A shortage of hand sanitizer

Question 14

Which of the following best defines economic efficiency in a competitive market?

Accepted Answer

When the sum of consumer surplus and producer surplus is at a maximum.

Question 15

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

Accepted Answer

A surplus of workers (unemployment)

Question 16

Suppose a per-unit tax is imposed on a good. Which area on a supply and demand graph represents the deadweight loss from the tax?

Accepted Answer

The area between the supply and demand curves over the units no longer traded due to the tax.

Question 17

Which of the following is true about the effect of rent controls (price ceilings) on the apartment market?

Accepted Answer

They create a shortage of apartments.

Question 18

If the government wants to raise tax revenue with minimal deadweight loss, it should tax goods with:

Accepted Answer

Inelastic demand and inelastic supply.

Question 19

Which of the following best describes the concept of tax incidence?

Accepted Answer

The actual division of the burden of a tax between buyers and sellers.

Economic Efficiency, Government Price Setting, and Taxes: Core Concepts and Applications

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