Question 1

Refer to the figure below.  If this market is unregulated, total economic surplus is:
A)$20.
B)$32.
C)$48.
D)$84.

Accepted Answer

The answer of Refer to the figure below.  If...

Question 2

Suppose a market is in equilibrium. The area below the market price and above the supply curve is:
A)the loss in total economic surplus.
B)producer surplus.
C)consumer surplus.
D)total economic surplus.

Accepted Answer

Producer surplus is the area between the price received and the sellers' reservation prices.

Question 3

Refer to the figure below.  If this market is unregulated, the economic surplus received by producers is:
A)$16.
B)$24.
C)$32.
D)$48.

Accepted Answer

The answer of Refer to the figure below.  If...

Question 4

Refer to the figure below.  When the market is unregulated, consumer surplus is represented by the area:
A)AJE
B)ABC
C)AGI
D)DBC

Accepted Answer

The answer of Refer to the figure below.  When...

Question 5

Refer to the figure below.  If this market is unregulated, the economic surplus received by consumers is:
A)$4.
B)$8.
C)$16.
D)$24.

Accepted Answer

The economic surplus received by consumers is the area above the market price (P) and below the demand curve. In this case, the equilibrium price is $6 and the economic surplus received by consumers is the area of the triangle formed by the points (0,12) (6,6) and (6,12). The base of the triangle is 6 and the height is 6, so the economic surplus is (1/2)(6)(6) = $18. However, since only 3 units are sold at this price, consumers only pay a total of $18 for these units. Thus, the net economic surplus received by consumers is $18 - $2/unit * 3 units = $12. Therefore, the answer is C ($16 is the total economic surplus, but only $12 is received by consumers).

Question 6

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:
A)total economic surplus.
B)producer surplus.
C)consumer surplus.
D)the loss in total economic surplus.

Accepted Answer

The area below the demand curve and above the market price represents the consumer surplus, which is the additional benefit or value that consumers receive from consuming a product beyond what they are willing to pay for it. In equilibrium, the market price is set at the point where the demand and supply curves intersect, maximizing the total economic surplus, which includes both consumer and producer surplus. However, the area below the supply curve and above the market price represents producer surplus, not the area below the demand curve and above the market price. Additionally, there should not be a loss in total economic surplus in equilibrium.

Question 7

The sum of producer surplus and consumer surplus is:
A)normal profit.
B)total economic profit.
C)total surplus.
D)the marginal benefit of a good.

Accepted Answer

The sum of producer surplus (the difference between the price that producers receive and the minimum price they would be willing to accept) and consumer surplus (the difference between the maximum price consumers are willing to pay and the market price) is known as total surplus. It represents the overall benefit that society receives from the production and consumption of a good.

Question 8

Refer to the figure below.  If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.
A)BJEH
B)BAEH
C)JAE
D)GAEF

Accepted Answer

The answer of Refer to the figure below.  If...

Question 9

Refer to the figure below.  If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______.
A)DBC
B)DGF
C)0GFQ2
D)0DFQ2

Accepted Answer

The answer of Refer to the figure below.  If...

Question 10

Refer to the figure below.  If a price ceiling were imposed at point G, then excess demand would be measured by the distance between points:
A)G and I
B)F and I
C)K and I
D)F and K

Accepted Answer

The answer of Refer to the figure below.  If...

Question 11

If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be:
A)$10
B)$7.50
C)$5
D)$6.25

Accepted Answer

Producer surplus is the price the seller received minus the seller's reservation price.

Question 12

Refer to the figure below.  If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ______.
A)FEC
B)DAC
C)GJEF
D)JAE + DGF

Accepted Answer

The answer of Refer to the figure below.  If...

Question 13

Refer to the figure below.  When the market is unregulated, producer surplus is represented by the area:
A)ABC
B)DGF
C)DBC
D)FHC

Accepted Answer

The answer of Refer to the figure below.  When...

Question 14

In a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption, then total economic surplus is maximized when:
A)price controls keep prices low enough that most consumers can purchase the item.
B)consumer surplus and producer surplus are equal.
C)consumer surplus is greater than producer surplus.
D)the market is in equilibrium.

Accepted Answer

In a perfectly competitive market, total economic surplus is maximized when the market is in equilibrium. This means that the quantity demanded equals the quantity supplied, and the price is set at the point where the demand curve and the supply curve intersect. At this point, consumer surplus and producer surplus are maximized, and the allocation of resources is considered efficient. This is because all potential gains from trade have been realized, and there is no way to make one person better off without making someone else worse off. Therefore, the correct answer is (D) the market is in equilibrium.

Question 15

Refer to the figure below.  If a price ceiling were imposed at $4, consumer surplus would be:
A)$36.
B)$20.
C)$24.
D)$28.

Accepted Answer

With a price ceiling at $4, the quantity demanded would be 8 units (the demand curve intersects the price ceiling at a quantity of 8). At this quantity, the maximum price consumers are willing to pay is $6 (where the demand curve intersects the price axis). Thus, each of the 8 units would be purchased at a price of $4, resulting in a consumer surplus of $2 per unit. The total consumer surplus would be (8 units) x ($2 surplus per unit) = $16. However, we must also add the consumer surplus from the units purchased at prices above $4, before the price ceiling was imposed. At a price of $5, the quantity demanded was 5 units, and at a price of $6, the quantity demanded was 3 units. Thus, the additional consumer surplus from these units would be (5 units x $1 surplus per unit) + (3 units x $0 surplus per unit) = $5. Adding this to the consumer surplus from the units purchased at $4, we get a total consumer surplus of $16 + $5 = $21. But we must also subtract the revenue received by producers, which is $4 x 8 units = $32. Therefore, total social welfare (consumer surplus plus producer surplus) would be $21 + $32 = $53.

Question 16

Consumer surplus is the cumulative difference between:
A)consumers' incomes and consumers' expenditures.
B)the amount consumers are willing to pay and the price they actually pay.
C)the suggested retail price and the price consumers actually pay.
D)consumers' savings and consumers' expenditures.

Accepted Answer

Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and the actual price they pay. This represents the benefit that consumers receive from obtaining the good or service at a price lower than what they were willing to pay. It is not related to consumers' incomes or savings, nor is it based on suggested retail prices.

Question 17

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be:
A)$18.
B)$11.
C)$7.
D)$4.

Accepted Answer

Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price they pay. Therefore, in this case, the consumer surplus would be $11 - $7 = $4. Option D is the only one that reflects this calculation.

Question 18

Refer to the figure below.  If a price ceiling were imposed at $4, total economic surplus would be ______, which is ______ less than when the market is unregulated market.
A)$8; $24
B)$24; $8
C)$24; $16
D)$48; $8

Accepted Answer

If a price ceiling were imposed at $4, the quantity demanded would exceed the quantity supplied, leading to a shortage. The new equilibrium quantity would be 6 units. At this quantity, the maximum price that both buyers and sellers are willing to pay is $4. Total economic surplus would be the area of triangle ABC, which is (1/2)*6*4 = $12. Consumer surplus would be the area of triangle ABD, which is (1/2)*6*(8-4) = $12. Producer surplus would be the area of triangle BCD, which is (1/2)*6*(4-0) = $12. Therefore, total economic surplus would be $12 + $12 = $24. This is $8 less than when the market is unregulated ($32). Therefore, the answer is B.

Question 19

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:
A)producer surplus.
B)lost surplus.
C)total economics surplus.
D)consumer surplus.

Accepted Answer

Producer surplus is the difference between the actual price received by the producer and the lowest price they would have been willing to sell for. This is a measure of the benefit to producers from participating in the market. Lost surplus refers to the total welfare that is lost when a market is not functioning efficiently, while total economic surplus is the sum of producer and consumer surplus. Consumer surplus is the difference between the highest price a consumer is willing to pay and the actual price they pay, and measures the benefit to consumers from participating in the market.

Question 20

Refer to the figure below.  If a price ceiling were imposed at $4, producer surplus would be:
A)$24.
B)$16.
C)$8.
D)$4.

Accepted Answer

The answer of Refer to the figure below.  If...

Quiz 7: Efficiency, Exchange, and the Invisible Hand in Action

Refer to the figure below. If this market is unregulated, total economic surplus is:

Suppose a market is in equilibrium. The area below the market price and above the supply curve is:

Refer to the figure below. If this market is unregulated, the economic surplus received by producers is:

Refer to the figure below. When the market is unregulated, consumer surplus is represented by the area:

Refer to the figure below. If this market is unregulated, the economic surplus received by consumers is:

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

The sum of producer surplus and consumer surplus is:

Refer to the figure below. If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.

Refer to the figure below. If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______.

Refer to the figure below. If a price ceiling were imposed at point G, then excess demand would be measured by the distance between points:

If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be:

Refer to the figure below. If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ______.

Refer to the figure below. When the market is unregulated, producer surplus is represented by the area:

In a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption, then total economic surplus is maximized when:

Refer to the figure below. If a price ceiling were imposed at $4, consumer surplus would be:

Consumer surplus is the cumulative difference between:

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be:

Refer to the figure below. If a price ceiling were imposed at $4, total economic surplus would be , which is less than when the market is unregulated market.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

Refer to the figure below. If a price ceiling were imposed at $4, producer surplus would be: