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

$$CS = \frac{1}{2} \times (Q_{market}) \times (P_{max} - P_{market})$$

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 $$3.50. Theresa is willing to pay 6.00. $$What is Theresa’s consumer surplus?

Accepted Answer

$$6.00 - 3.50$$ = $2.50

Question 3

Producer surplus is maximized at which point in a competitive market?

Accepted Answer

Where the marginal benefit equals the marginal cost.

Question 4

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 5

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

Accepted Answer

$$CS = \frac{1}{2} 	imes (Q_{market}) 	imes (P_{max} - P_{market})$$

Question 6

What is deadweight loss?

Accepted Answer

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

Question 7

A per-unit tax on a good will cause the supply curve to:

Accepted Answer

Shift upward by the amount of the tax.

Question 8

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

Accepted Answer

Consumers

Question 9

Given the demand equation $$Q_D = 4,750,000 - 1,000P$$ and the supply equation $$Q_S = -1,000,000 + 1,300P$$, what is the equilibrium price?

Accepted Answer

$$P = 2,500$$

Question 10

Which of the following is NOT a likely effect of a price floor set above the equilibrium price?

Accepted Answer

A shortage of the good.

Question 11

In the context of minimum wage laws, what is a possible unintended consequence?

Accepted Answer

Decrease in employment for low-skilled workers.

Question 12

Economic efficiency is achieved in a market when:

Accepted Answer

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

Question 13

If a government imposes a rent ceiling below the equilibrium rent, what happens to the quantity of apartments supplied and demanded?

Accepted Answer

Quantity supplied decreases, quantity demanded increases.

Question 14

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 in a market.

Question 15

A government imposes a $$1.00 per pack tax on cigarettes. Before the tax, the equilibrium price is 6.00. $$After the tax, consumers pay $$6.90 and producers receive 5.90. $$How much of the tax is paid by consumers?

Accepted Answer

$0.90

Question 16

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

Accepted Answer

The area above the supply curve and below the market price.

Question 17

If Uber’s average ride price is $$13.30 and the demand curve intercept is 65.17$$, with 111 million rides taken, what is the consumer surplus?

Accepted Answer

$$CS = \frac{1}{2} 	imes 111,000,000 	imes (65.17 - 13.30)$$

Question 18

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

Accepted Answer

Whether price controls are 'bad' depends on values and judgments.

Question 19

What is the effect of a price gouging law during an emergency, according to economic theory?

Accepted Answer

It prevents sellers from gaining abnormally high profits and may keep supply from increasing.

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

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