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

$$CS = \frac{1}{2} \times (base) \times (height)$$

Question 1

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 (rent) for apartments?

Accepted Answer

$$P = 2,500$$

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay and the actual price paid.

Question 3

If the market price for chai tea is $$3.50, and Theresa is willing to pay 6.00$$, what is her consumer surplus?

Accepted Answer

$$2.50$$

Question 4

Producer surplus is maximized in a competitive market when:

Accepted Answer

The marginal benefit to consumers equals the marginal cost to producers.

Question 5

A price ceiling set below the equilibrium price will generally result in:

Accepted Answer

A shortage of the good.

Question 6

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 the tax?

Accepted Answer

$$5.90$$

Question 7

Deadweight loss is defined as:

Accepted Answer

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

Question 8

Which of the following is true regarding tax incidence?

Accepted Answer

The side of the market (buyers or sellers) that is less sensitive to price changes bears more of the tax burden.

Question 9

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

Accepted Answer

A surplus of wheat.

Question 10

If the demand for gasoline is steep (inelastic), who bears most of the burden of a gasoline tax?

Accepted Answer

Buyers

Question 11

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

Accepted Answer

$$CS = \frac{1}{2} 	imes (base) 	imes (height)$$

Question 12

If a rent ceiling is imposed at $$1,500 when the equilibrium rent is 2$$,500, what happens to the quantity of apartments supplied and demanded?

Accepted Answer

Supplied decreases, demanded increases

Question 13

Which of the following best describes economic efficiency?

Accepted Answer

A market outcome where the sum of consumer and producer surplus is maximized.

Question 14

If the government imposes a minimum wage above the equilibrium wage, what is the likely effect on employment?

Accepted Answer

Employment decreases.

Question 15

Given the demand equation $$Q_D = 4,750,000 - 1,000P$$ and a rent ceiling of $$1,500$$, what is the quantity of apartments supplied?

Accepted Answer

950,000

Question 16

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

Accepted Answer

An increase in economic efficiency

Question 17

If the government collects tax revenue from a per-unit tax, what happens to consumer and producer surplus?

Accepted Answer

Some consumer and producer surplus is transferred to the government as tax revenue.

Question 18

What is the deadweight loss if the competitive equilibrium deadweight loss is $$0$$ and the deadweight loss under rent control is $$1,495$$ million?

Accepted Answer

$$1,495$$ million

Question 19

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

Accepted Answer

Whether the gains from price controls are worth the losses depends on our values and judgments.

Question 20

If the supply curve for gasoline shifts up by $$0.10$$ due to a tax, and the price consumers pay rises by $$0.08$$, who bears the greater burden of the tax?

Accepted Answer

Consumers

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