Q: Which formula correctly calculates consumer surplus for the market as the area under the demand curve and above the price?

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

Question 1

Which of the following best describes the difference between positive and normative economics?

Accepted Answer

Positive economics deals with objective analysis and facts, while normative economics involves subjective judgments and opinions.

Question 2

Suppose a consumer faces a budget constraint given by $$P_x x + P_y y = I. If $$the price of good $$x$$ increases, what happens to the budget constraint?

Accepted Answer

The budget constraint pivots inward along the $$x-$$axis, reducing the maximum quantity of $$x$$ that can be purchased.

Question 3

Which of the following is an example of opportunity cost?

Accepted Answer

The value of the next best alternative forgone when making a decision.

Question 4

If the demand for a product increases due to a rise in consumer income, which type of good is this most likely to be?

Accepted Answer

A normal good

Question 5

A competitive market is characterized by which of the following features?

Accepted Answer

Many buyers and sellers, each unable to influence the market price.

Question 6

Suppose the market demand curve for a product is given by $$Q_D = 100 - 2P$$ and the market supply curve is $$Q_S = 20 + 3P. $$What is the equilibrium price?

Accepted Answer

$$P = 16$$

Question 7

Which of the following best illustrates the law of diminishing marginal utility?

Accepted Answer

As a person consumes more slices of pizza, the additional satisfaction from each extra slice decreases.

Question 8

If a government sets a price ceiling below the equilibrium price for gasoline, what is the most likely outcome?

Accepted Answer

Excess demand (shortage) in the market for gasoline.

Question 9

Which of the following is NOT a determinant of demand?

Accepted Answer

Technology used to produce the good

Question 10

A consumer's optimal choice occurs when which two conditions are met?

Accepted Answer

The marginal benefit per dollar spent is equal across all goods and the entire income is spent.

Question 11

If the supply curve for a product shifts to the right, which of the following is most likely to occur, ceteris paribus?

Accepted Answer

The equilibrium price decreases and the equilibrium quantity increases.

Question 12

Which formula correctly calculates consumer surplus for the market as the area under the demand curve and above the price?

Accepted Answer

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

Question 13

Which of the following best describes the scientific method in economics?

Accepted Answer

Formulating hypotheses, collecting data, and testing models to explain economic phenomena.

Question 14

If the marginal benefit of good $$A is$$ $$MB_A$$ and the price of good $$A is$$ $$P_A$$, what is the condition for optimal consumption between two goods $$A$$ and $$B$$?

Accepted Answer

$$\frac{MB_A}{P_A} = \frac{MB_B}{P_B}$$

Question 15

Which of the following is an example of omitted variable bias in economic analysis?

Accepted Answer

Failing to include education level when analyzing the relationship between income and health.

Question 16

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

Accepted Answer

Excess supply (surplus) in the market.

Question 17

Which of the following best explains why the demand curve slopes downward?

Accepted Answer

As price decreases, consumers are willing and able to buy more of the good due to the substitution and income effects.

Question 18

If a consumer's income increases and the budget constraint shifts outward, but the slope does not change, what does this imply?

Accepted Answer

Prices of both goods remain unchanged.

Question 19

Which of the following is NOT a step in analyzing a shift in supply or demand in a competitive market?

Accepted Answer

Calculate the elasticity of demand.

Question 20

A consumer is willing to pay $$\10$ for a product, but the market price is $$\$$7. $$What is the consumer surplus for this individual?

Accepted Answer

$$CS = \3$

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