$$CS = \frac{1}{2} \times (100 - 20) \times Q^*$$

$$PS = \frac{1}{2} \times Q^* \times (P^* - P_{min})$$

$$Tax\ Revenue = t \times Q_{tax}$$

Question 1

Which of the following best describes consumer surplus in a market?

Accepted Answer

The difference between the price consumers are willing to pay and the price they actually pay for a good.

Question 2

Given a linear demand curve $$P = 100 - 2Q$$ and a market price of $$P^* = 20$$, what is the formula for calculating total consumer surplus?

Accepted Answer

$$CS = \frac{1}{2} 	imes (100 - 20) 	imes Q^*$$

Question 3

If the market price is $$P^* = 20$$ and the equilibrium quantity is $$Q^* = 40$$, what is the total consumer expenditure?

Accepted Answer

$$800$$

Question 4

Producer surplus is best defined as:

Accepted Answer

The difference between the price producers actually receive and the marginal cost of producing the good.

Question 5

Suppose the supply curve is $$P = 0.5Q$$ and the market price is $$P^* = 20$$ with $$Q^* = 40. $$What is the formula for producer surplus?

Accepted Answer

$$PS = \frac{1}{2} 	imes Q^* 	imes (P^* - P_{min})$$

Question 6

If the demand curve is $$P = 100 - 2Q$$ and the supply curve is $$P = 0.5Q$$, what is the equilibrium quantity $$Q^*$$?

Accepted Answer

$$Q^* = 40$$

Question 7

Which of the following statements about market efficiency is correct?

Accepted Answer

Market equilibrium maximizes total surplus for both consumers and producers.

Question 8

A price floor set above the equilibrium price will:

Accepted Answer

Increase producer surplus, decrease consumer surplus, and create deadweight loss.

Question 9

What is the effect of a binding price ceiling on market efficiency?

Accepted Answer

It creates a deadweight loss and may benefit some consumers while harming others.

Question 10

A quota set below the equilibrium quantity will:

Accepted Answer

Increase producer surplus, decrease consumer surplus, and create deadweight loss.

Question 11

If a per-unit tax of $$t is $$imposed on a good, what is the government tax revenue?

Accepted Answer

$$Tax\ Revenue = t 	imes Q_{tax}$$

Question 12

After a tax is imposed, which of the following is true about consumer and producer surplus?

Accepted Answer

Both consumer and producer surplus decrease, and part of the lost surplus becomes government revenue.

Question 13

Deadweight loss from a tax is best described as:

Accepted Answer

The reduction in total surplus that is not captured by consumers, producers, or the government.

Question 14

Suppose a tax of $$t = 5 is $$imposed on a market with equilibrium quantity $$Q^* = 38. $$What is the government tax revenue?

Accepted Answer

$$190$$

Question 15

Which of the following is NOT a possible reason for government intervention in a free market?

Accepted Answer

To maximize total surplus without any concern for equity.

Question 16

If the demand curve is $$P = 500 - 5Q$$ and the supply curve is $$P = 20 + 3Q$$, what is the equilibrium quantity $$Q^*$$?

Accepted Answer

$$Q^* = 60$$

Question 17

Which of the following best describes the effect of a sales tax on market efficiency?

Accepted Answer

It reduces market efficiency by creating a deadweight loss.

Question 18

In a competitive market, the total market surplus is:

Accepted Answer

$$Total\ Surplus = Consumer\ Surplus + Producer\ Surplus$$

Question 19

If a price ceiling is set below the equilibrium price, what is a likely consequence?

Accepted Answer

Excess demand and a deadweight loss.

Unit 4: Market Efficiency – Consumer Surplus

Study Guide - Practice Questions