Q: Which formula correctly calculates the area representing consumer surplus in a market with a linear demand curve?

$$\frac{1}{2} \times \text{base} \times \text{height}$$

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

$$P = 2,500$$

Question 3

In a competitive market, economic efficiency is achieved when:

Accepted Answer

The marginal benefit to consumers of the last unit produced equals its marginal cost of production.

Question 4

If a price ceiling is set below the equilibrium price, what is the most likely outcome in the market?

Accepted Answer

A shortage of the good.

Question 5

Which formula correctly calculates the area representing consumer surplus in a market with a linear demand curve?

Accepted Answer

$$\frac{1}{2} 	imes 	ext{base} 	imes 	ext{height}$$

Question 6

A government imposes a price floor of $$8.00$$ per bushel in the wheat market, where the equilibrium price is $$6.50. $$What is a likely consequence?

Accepted Answer

A surplus of wheat.

Question 7

Deadweight loss in a market is best described as:

Accepted Answer

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

Question 8

If the supply curve for cigarettes shifts up by $$1.00$$ due to a tax, and the new equilibrium price paid by consumers is $$6.90$$, what price do producers receive after the tax?

Accepted Answer

$$5.90$$

Question 9

Which of the following statements about tax incidence is correct?

Accepted Answer

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

Question 10

Suppose a per-unit tax is imposed on gasoline, causing the price consumers pay to rise from $$2.50 to$$ $$2.58$$ and the price sellers receive to fall from $$2.50 to$$ $$2.48. $$What portion of the tax is paid by consumers?

Accepted Answer

$$0.08$$

Question 11

If the demand for a product is very inelastic, who bears most of the burden of a tax imposed on that product?

Accepted Answer

Consumers

Question 12

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

Accepted Answer

Rent control

Question 13

In the context of government intervention, what is the primary economic effect of a minimum wage set above the equilibrium wage?

Accepted Answer

It creates a surplus of labor (unemployment).

Question 14

Suppose the government imposes a rent control of $$1,500$$ per month in a market where the equilibrium rent is $$2,500. If $$the supply equation is $$Q^s = -1,000,000 + 1,300P$$, what is the quantity of apartments supplied?

Accepted Answer

$$950,000$$

Question 15

Which of the following best explains why deadweight loss occurs when a market is not in equilibrium?

Accepted Answer

Some mutually beneficial trades between buyers and sellers do not occur.

Question 16

During the Covid-19 pandemic, prices for hand sanitizer rose sharply. If the government had imposed a price ceiling, what would have been the likely short-run effect?

Accepted Answer

A shortage of hand sanitizer.

Question 17

Which equation represents the equilibrium condition in a market?

Accepted Answer

$$Q^d = Q^s$$

Question 18

If a 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 19

Which of the following is NOT a likely result of government-imposed price controls?

Accepted Answer

All market participants benefit equally.

Question 20

In the context of public finance, what makes one tax more efficient than another?

Accepted Answer

It raises more tax revenue with a smaller excess burden (deadweight loss).

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

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