Q: Which equation correctly represents economic surplus in a market?

$$\text{Economic Surplus} = \text{Consumer Surplus} + \text{Producer Surplus}$$

Q: Which formula represents consumer surplus in a market?

$$\text{Consumer Surplus} = \text{Total Benefit Received} - \text{Total Amount Paid}$$

Question 1

Suppose the market price for chai tea is $$3.50 per cup. Theresa is willing to pay 6.00$$, Tom $$5.00, Terri 4.00$$, and Tim $3.00. What is the total consumer surplus in this market?

Accepted Answer

$$A = (6.00 - 3.50) + (5.00 - 3.50) + (4.00 - 3.50) = 2.50$$ + $$1.50 + 0.50$$ = $$4.50$$

Question 2

Which of the following best describes producer surplus?

Accepted Answer

The difference between the lowest price a firm would accept for a good or service and the price it actually receives.

Question 3

If the marginal benefit of the last unit produced equals its marginal cost, what can be said about the market?

Accepted Answer

The market is economically efficient.

Question 4

A price floor is set above the equilibrium price in the wheat market. What is the likely outcome?

Accepted Answer

A surplus of wheat will occur.

Question 5

Which equation correctly represents economic surplus in a market?

Accepted Answer

$$	ext{Economic Surplus} = 	ext{Consumer Surplus} + 	ext{Producer Surplus}$$

Question 6

If a government imposes a rent ceiling below the equilibrium rent, what is the most likely result?

Accepted Answer

A shortage of apartments will occur.

Question 7

What is deadweight loss?

Accepted Answer

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

Question 8

Suppose a $$1.00 per pack tax is imposed on cigarettes. If the equilibrium price before the tax is 6.00 $$and the new price paid by consumers is $6.90, what price do producers receive after the tax?

Accepted Answer

$$5.90$$

Question 9

Which of the following statements about tax incidence is correct?

Accepted Answer

Tax incidence depends on the relative slopes of the demand and supply curves.

Question 10

If the demand curve for a good is steep, who bears most of the burden of a tax imposed on that good?

Accepted Answer

Buyers bear most of the burden.

Question 11

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

Accepted Answer

Rent control

Question 12

What is the effect of a price gouging law during an emergency, such as the Covid-19 pandemic, on the supply of hand sanitizer in the medium run?

Accepted Answer

Supply will remain limited because firms cannot justify additional costs.

Question 13

Which formula represents consumer surplus in a market?

Accepted Answer

$$	ext{Consumer Surplus} = 	ext{Total Benefit Received} - 	ext{Total Amount Paid}$$

Question 14

In the labor market, if workers are relatively insensitive to changes in wages, who bears most of the burden of a payroll tax?

Accepted Answer

Workers bear most of the burden.

Question 15

If a price floor is imposed in the wheat market at $$8.00 per bushel, above the equilibrium price of 6.50$$, and farmers produce 2.2 billion bushels but only 1.8 billion are sold, what is the surplus?

Accepted Answer

400 million bushels

Question 16

Which of the following best describes the effect of a rent ceiling on economic efficiency?

Accepted Answer

Economic efficiency is reduced due to deadweight loss.

Question 17

What is the main purpose of per-unit taxes imposed by governments?

Accepted Answer

To fund government activities.

Question 18

If a 10-cent-per-gallon excise tax is imposed on gasoline and the price consumers pay rises from $$2.50 to 2.58$$, what portion of the tax is paid by consumers?

Accepted Answer

8 cents

Question 19

Which of the following is true about the efficiency of competitive markets?

Accepted Answer

The sum of consumer surplus and producer surplus is maximized.

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