Question 1

Which of the following best describes consumer surplus in a market?

Accepted Answer

The difference between the maximum amount consumers are willing to pay (marginal benefit) and the amount they actually pay.

Question 2

Suppose the equilibrium price of bread is $$2.00. The government imposes a price ceiling of 1.50. $$What is the most likely immediate effect in the bread market?

Accepted Answer

A shortage of bread, as quantity demanded exceeds quantity supplied.

Question 3

Which of the following equations correctly represents economic efficiency in a competitive market?

Accepted Answer

$$MB = MC$$

Question 4

A price floor set above the equilibrium price will most likely result in:

Accepted Answer

A surplus, as quantity supplied exceeds quantity demanded.

Question 5

If a tax is imposed on producers, what happens to the supply curve?

Accepted Answer

It shifts left by the amount of the tax.

Question 6

Deadweight loss in a market is best defined as:

Accepted Answer

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Question 7

Which of the following is NOT a likely effect of rent control (a price ceiling on housing)?

Accepted Answer

Increase in the quality of housing.

Question 8

If the government imposes a tax on buyers, what is the immediate effect on the demand curve?

Accepted Answer

The demand curve shifts left by the amount of the tax.

Question 9

Which of the following statements about tax incidence is correct?

Accepted Answer

Tax incidence is determined by the relative elasticities of supply and demand.

Question 10

Suppose a government subsidy is given to buyers of electric cars. What is the most likely effect in the market for electric cars?

Accepted Answer

The demand curve shifts right.

Question 11

In the labor market, what is the effect of a minimum wage set above the equilibrium wage?

Accepted Answer

It creates a surplus of labor (unemployment).

Question 12

Which area on a standard supply and demand graph represents producer surplus?

Accepted Answer

The area above the supply curve and below the price.

Question 13

If a market is in competitive equilibrium, what is the value of deadweight loss?

Accepted Answer

$$0$$

Question 14

Which of the following best describes a shortage?

Accepted Answer

Quantity demanded is greater than quantity supplied.

Question 15

A government imposes a tax on a good, raising the price buyers pay from $$P_0 to$$ $$P_1$$ and lowering the price sellers receive from $$P_0 to$$ $$P_2. $$Which of the following is true?

Accepted Answer

The difference $$P_1$$ - $$P_2$$ equals the tax per unit.

Question 16

Which of the following is a direct result of a price ceiling set below equilibrium price?

Accepted Answer

A shortage in the market.

Question 17

If the marginal benefit of the last unit produced is less than its marginal cost, what should happen in an efficient market?

Accepted Answer

Production should decrease.

Question 18

Which of the following is true about the effect of a tax on economic surplus?

Accepted Answer

It creates deadweight loss by reducing economic surplus.

Question 19

A competitive market is efficient if:

Accepted Answer

The sum of consumer and producer surplus is maximized.

Question 20

Which of the following best describes a subsidy?

Accepted Answer

A payment the government makes to either the buyer or seller when a good or service is purchased or sold.

Economic Efficiency, Government Price Setting, and Taxes

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