Q: Which of the following best describes consumer surplus?

$CS = \text{willingness to pay} - \text{actual price}$

Question 1

Suppose a new technology reduces the cost of producing electric cars, while at the same time, consumer preferences shift in favor of electric cars. What is the certain effect on the equilibrium quantity and price in the electric car market?

Accepted Answer

Equilibrium quantity increases; effect on equilibrium price is ambiguous.

Question 2

If the price of coffee increases, what is likely to happen to the demand for tea, assuming they are substitutes?

Accepted Answer

The demand for tea increases.

Question 3

Which of the following would cause a rightward shift in the supply curve for smartphones?

Accepted Answer

A decrease in the price of microchips, an input for smartphones.

Question 4

A price ceiling is set below the equilibrium price in the market for apartments. What is the most likely outcome?

Accepted Answer

A shortage of apartments.

Question 5

If a good is an inferior good, what happens to its demand when consumer incomes rise?

Accepted Answer

Demand decreases.

Question 6

Suppose the government imposes a per-unit tax on sellers in a market. The tax burden falls more heavily on which side of the market?

Accepted Answer

The side of the market that is less price elastic.

Question 7

Which of the following best describes consumer surplus?

Accepted Answer

$CS = 	ext{willingness to pay} - 	ext{actual price}$

Question 8

A binding price floor is imposed in the wheat market. What is the likely effect on producer surplus and deadweight loss?

Accepted Answer

Producer surplus may increase for some producers, but deadweight loss is created.

Question 9

Which of the following is NOT a shifter of the demand curve for laptops?

Accepted Answer

A decrease in the price of microchips used to make laptops.

Question 10

Suppose the market for oranges is in equilibrium. A hurricane destroys a large portion of the orange crop. What happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Question 11

If the government sets a non-binding price ceiling in the gasoline market, what is the effect on the market outcome?

Accepted Answer

There is no effect; the market remains at equilibrium.

Question 12

Which of the following best explains why efficiency occurs at the intersection of the demand and supply curves?

Accepted Answer

Because $MB = MC$ at that point.

Question 13

A tax of $\$2$ per unit is imposed on a good. If 1,000 units are sold after the tax, what is the total tax revenue collected by the government?

Accepted Answer

$2,000$

Question 14

Which of the following would cause a leftward shift in the supply curve for bread?

Accepted Answer

An increase in the price of wheat, an input for bread.

Question 15

If the price of peanut butter rises and jelly is a complement, what happens to the demand for jelly?

Accepted Answer

The demand for jelly decreases.

Question 16

Which of the following statements is true regarding a change in quantity demanded versus a change in demand?

Accepted Answer

A change in quantity demanded is a movement along the demand curve; a change in demand is a shift of the demand curve.

Question 17

Suppose a per-unit tax is imposed on a market. Which area on a supply and demand graph represents deadweight loss (DWL)?

Accepted Answer

The area between the supply and demand curves for units no longer traded due to the tax.

Question 18

If the number of firms in the market increases, what happens to the market supply curve?

Accepted Answer

It shifts to the right.

Question 19

Which of the following is an example of a market intervention that moves the market away from efficiency?

Accepted Answer

A binding price ceiling that creates a shortage.

Question 20

A new study shows that eating avocados improves health, leading to a change in the avocado market. Which demand shifter is at work?

Accepted Answer

Tastes and preferences.

Microeconomics Study Notes: Market Equilibrium, Supply & Demand, and Market Interventions

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