Q: What is the formula for calculating the area of consumer surplus in a market with a linear demand curve?

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

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 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?

Accepted Answer

$$2,500$$

Question 3

A government imposes a price ceiling below the equilibrium price in the market for apartments. What is the most likely result?

Accepted Answer

A shortage of apartments and a deadweight loss.

Question 4

If the marginal benefit of the last unit produced is less than its marginal cost, what does this imply about the market outcome?

Accepted Answer

The quantity produced is inefficiently high.

Question 5

Which of the following is true about deadweight loss?

Accepted Answer

It is the reduction in economic surplus resulting from a market not being in competitive equilibrium.

Question 6

A $$1.00$$ per pack tax is imposed on cigarettes. If the price consumers pay rises by $$0.90$$ and the price producers receive falls by $$0.10$$, who bears most of the tax burden?

Accepted Answer

Consumers, because the demand curve is steeper than the supply curve.

Question 7

What is the formula for calculating the area of consumer surplus in a market with a linear demand curve?

Accepted Answer

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

Question 8

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

Accepted Answer

Minimum wage laws.

Question 9

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

Accepted Answer

It shifts upward by the amount of the tax.

Question 10

Suppose the government imposes a rent ceiling of $$1,500$$ per month in a market where the equilibrium rent is $$2,500. If $$the quantity of apartments supplied falls to $$950,000$$, what is the deadweight loss from the rent control, given the following calculations: Area B = $$845$$ million, Area C = $$650$$ million?

Accepted Answer

$$1,495$$ million

Question 11

Which of the following best explains why black markets may arise under price ceilings?

Accepted Answer

Because the legal price is set below equilibrium, creating a shortage.

Question 12

What is the economic effect of a price floor set above the equilibrium price in the wheat market?

Accepted Answer

It creates a surplus of wheat and deadweight loss.

Question 13

If the supply curve for a good is relatively steep compared to the demand curve, who will bear more of the burden of a per-unit tax?

Accepted Answer

Sellers, because they are less sensitive to price changes.

Question 14

Which of the following statements about economic efficiency is correct?

Accepted Answer

Economic efficiency is achieved when the sum of consumer and producer surplus is maximized.

Question 15

Suppose Uber’s average ride price is $$13.30$$ and the maximum price consumers are willing to pay is $$65.17. If 111 $$million rides are taken, what is the estimated annual consumer surplus?

Accepted Answer

$$CS = \frac{1}{2} 	imes 111,000,000 	imes (65.17 - 13.30)$$

Question 16

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

Accepted Answer

All market participants are made better off.

Question 17

If the government imposes a per-unit tax on a good, what happens to the equilibrium quantity and price?

Accepted Answer

Equilibrium quantity decreases and the price paid by consumers increases.

Question 18

What is the main criterion for an efficient tax according to public finance literature?

Accepted Answer

A tax that imposes a small excess burden relative to the tax revenue it raises.

Question 19

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.

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

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