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 $$3.00. Theresa is willing to pay 6.00$$, Tom $$4.00, and Terri 3.50. $$What is the total consumer surplus for these three consumers?

Accepted Answer

$4.50

Question 3

Producer surplus is best defined as:

Accepted Answer

The difference between the price a firm actually receives and the marginal cost of producing the good or service.

Question 4

A market is considered economically efficient if:

Accepted Answer

The marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, and the sum of consumer and producer surplus is maximized.

Question 5

If a government imposes a price floor above the equilibrium price, what is the likely result?

Accepted Answer

A surplus of the good.

Question 6

Which area on a supply and demand graph represents deadweight loss when a market is not in equilibrium?

Accepted Answer

The area between the new quantity traded and the equilibrium quantity, bounded by the demand and supply curves.

Question 7

A price ceiling set below the equilibrium price will:

Accepted Answer

Create a shortage of the good.

Question 8

In the context of the market for gasoline, if the government imposes a per-unit tax, who bears the greater burden of the tax if the demand curve is steeper than the supply curve?

Accepted Answer

Buyers bear the greater burden.

Question 9

Suppose the demand for apartments is $$Q_d = 2,100,000 - 250P$$ and the supply is $$Q_s = 400,000 + 600P. $$What is the equilibrium price?

Accepted Answer

Question 10

If a $$1.00$$ per-pack tax is imposed on cigarettes, shifting the supply curve up by $$1.00$$, and the new equilibrium price paid by consumers is $$6.90$$, what price do producers receive after paying the tax?

Accepted Answer

$$5.90$$

Question 11

Which of the following is true regarding the incidence of a tax?

Accepted Answer

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

Question 12

A black market is most likely to arise when:

Accepted Answer

A price ceiling is set below the equilibrium price, creating a shortage.

Question 13

If the government imposes a rent ceiling below the equilibrium rent, what happens to consumer and producer surplus?

Accepted Answer

Consumer surplus may increase for some renters, but producer surplus decreases and deadweight loss occurs.

Question 14

Which of the following best describes deadweight loss?

Accepted Answer

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

Question 15

Suppose a minimum wage is set above the equilibrium wage. What is the likely effect on the labor market?

Accepted Answer

There will be a surplus of workers (unemployment).

Question 16

If a per-unit tax is imposed on a good, what happens to the supply curve?

Accepted Answer

It shifts upward by the amount of the tax.

Question 17

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

Accepted Answer

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

Question 18

If the government imposes a price gouging law during an emergency, what is a likely short-run effect?

Accepted Answer

A shortage of the good will occur.

Question 19

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

Accepted Answer

$$	ext{Consumer Surplus} = \frac{1}{2} 	imes (	ext{Base}) 	imes (	ext{Height})$$

Question 20

Which of the following is an example of a price floor?

Accepted Answer

Minimum wage laws.

Economic Efficiency, Government Price Setting, and Taxes: Study Notes

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