Question 1

When attempting to correct cases of "market failure", economists usually seek policies that maximize
A)the sum of consumer and producer surplus.
B)consumer surplus, not producer surplus.
C)producer surplus, not consumer surplus.
D)the difference between consumer and producer surplus.

Accepted Answer

Maximizing the sum of consumer and producer surplus represents the most efficient allocation of resources and is commonly seen as the goal of economic policies aimed at correcting market failures. By maximizing the total surplus, policymakers can achieve a Pareto efficient allocation, where no one can be made better off without making someone else worse off. It ensures that resources are allocated to their highest-valued uses, achieving the greatest possible economic welfare.

Question 2

The fact that the demand for luxury cars is elastic is not surprising because
A)the supply of luxury cars is inelastic.
B)there are few substitutes for true luxury cars.
C)luxury cars are primarily a "status symbol".
D)luxury cars are relatively expensive.

Accepted Answer

The demand for luxury cars is considered elastic because they are relatively expensive, and consumers are more sensitive to price changes. When prices increase, demand decreases more significantly compared to less expensive, essential goods.

Question 3

The amount of money consumers pay producers is
A)The area under the demand curve form the origin to the quantity purchased.
B)The area under the supply curve form the origin to the quantity produced.
C)The area under the demand curve but above the price line from the origin to the quantity purchased.
D)The price times the quantity or the rectangle whose height is the price and base is the quantity purchased.

Accepted Answer

The amount of money consumers pay producers is determined by the price times the quantity purchased, which is represented by the rectangular area whose height is the price and the base is the quantity purchased. Therefore, option D is the correct choice. Options A and B are incorrect because they only represent the area under the curve, but not the actual amount paid by consumers. Option C is also incorrect because it only represents the amount consumers are willing to pay, not the actual amount paid.

Question 4

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the consumer surplus is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

Consumer surplus is represented by the area between the demand curve and the price level, up to the quantity demanded. For a linear and downward sloping demand curve, this area forms a triangle.

Question 5

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the producer surplus is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

Producer surplus is represented by the area above the supply curve and below the equilibrium price, forming a triangle in the case of a linear and upward sloping supply curve.

Question 6

The net cost to society from prohibiting the operation of a competitive market in equilibrium is
A)lost consumer surplus only.
B)lost producer surplus only.
C)lost producer profits only.
D)a deadweight loss.

Accepted Answer

Prohibiting the operation of a competitive market in equilibrium creates a deadweight loss, which is the loss of both producer and consumer surplus that occurs when the quantity of a good produced is less than the socially optimal level. This represents a net cost to society because some individuals are prevented from making mutually beneficial exchanges that would have occurred in a competitive market. The other options (A, B, and C) do not capture the full extent of the costs associated with market intervention.

Question 7

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the money the consumer pays the producer is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

The money the consumer pays the producer is represented by the area of a rectangle, which is the price paid per unit times the quantity purchased.

Question 8

If a given reduction in market demand causes the market equilibrium price to decrease by a very large percentage while equilibrium quantity purchased decreases by a very small percentage,
A)market supply is inelastic (but not perfectly inelastic.)
B)market supply is elastic (but not perfectly elastic.)
C)market supply is perfectly inelastic.
D)market supply is perfectly elastic.

Accepted Answer

If a reduction in market demand causes the market equilibrium price to decrease by a very large percentage while equilibrium quantity purchased decreases by a very small percentage, then it indicates that the market supply is relatively inelastic. Inelastic supply means that the quantity supplied is not very responsive to changes in the market price. Therefore, even if the demand decreases significantly, the price would have to fall by a large amount to reduce the quantity supplied by a small percentage. Thus, the correct choice is A - market supply is inelastic but not perfectly inelastic.

Question 9

The variable cost to the producer
A)The area under the demand curve form the origin to the quantity purchased.
B)The area under the supply curve form the origin to the quantity produced.
C)The area under the demand curve but above the price line from the origin to the quantity purchased.
D)The area above the supply curve but below the price line from the origin to the quantity purchased.

Accepted Answer

Variable costs to the producer are represented by the area under the supply curve from the origin to the quantity produced, as this area reflects the costs that vary with the level of output.

Question 10

The value of the market to society is
A)The area under the demand curve form the origin to the quantity purchased.
B)The area under the supply curve form the origin to the quantity produced.
C)The area under the demand curve but above the price line from the origin to the quantity purchased.
D)The area under the demand curve but above the supply curve from the origin to the quantity purchased.

Accepted Answer

The value of the market to society is measured by the surplus generated, which is the difference between the maximum price consumers are willing to pay (i.e. the demand curve) and the minimum price producers are willing to accept (i.e. the supply curve). Therefore, the value of the market is the area under the demand curve but above the supply curve from the origin to the quantity purchased, as this represents the total surplus created by the market exchange.

Question 11

The producer surplus
A)the area under the demand curve form the origin to the quantity purchased.
B)the area under the supply curve form the origin to the quantity produced.
C)the area under the demand curve but above the price line from the origin to the quantity purchased.
D)the area above the supply curve but below the price line from the origin to the quantity purchased.

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to sell a product and the actual price they receive. It is represented by the area above the supply curve but below the price line from the origin to the quantity purchased. Therefore, option D is the correct choice.

Question 12

The difference between the value of a product enjoyed by consumers and the total variable costs incurred by producers in a competitive market for that product is
A)producer surplus.
B)consumer surplus.
C)the sum of consumer surplus and producer surplus.
D)the difference between consumer surplus and producer surplus.

Accepted Answer

This difference represents the total economic benefit to both consumers and producers, which is the sum of consumer surplus (the difference between what consumers are willing to pay and what they actually pay) and producer surplus (the difference between the market price and the minimum price at which producers are willing to sell).

Question 13

The net gain to society from the operation of a competitive market in equilibrium is
A)consumer surplus only.
B)producer surplus only.
C)the sum of consumer surplus and producer surplus.
D)the profits of the producers.

Accepted Answer

The net gain to society from the operation of a competitive market in equilibrium is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between the price consumers are willing to pay and the actual price they pay. Producer surplus is the difference between the price producers receive and the minimum price they are willing to accept. Therefore, the sum of these two surpluses represents the total economic welfare gained by society from the market.

Question 14

For a linear and upward sloping supply curve, when the consumer has to pay a positive price for the good, the variable cost to the producer consumer is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

The correct answer is D because for a linear and upward sloping supply curve, when the consumer pays a positive price, the variable cost to the producer is represented by a four-sided figure. This figure consists of a rectangle at the bottom, representing the fixed cost over the quantity produced, and a right triangle on the top, where the hypotenuse is the supply curve, representing the increasing variable cost per additional unit produced.

Question 15

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the value to society of the market is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

The value to society of the market, also known as consumer and producer surplus, is represented by a triangle in this scenario. The area under the demand curve and above the price level, up to the quantity traded, represents the consumer surplus, while the area above the supply curve and below the price level represents the producer surplus. Together, these form a triangle.

Question 16

For a linear and downward sloping demand curve, when the consumer has to pay a positive price for the good, the value to the consumer is a
A)Rectangle.
B)Triangle.
C)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.
D)Four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the supply curve.

Accepted Answer

For a linear and downward sloping demand curve, the value to the consumer is equal to the area under the demand curve and above the price they pay. This area is a four-sided figure that is a rectangle on the bottom and a right triangle on the top whose hypotenuse is the demand curve.

Question 17

The consumer surplus is
A)the area under the demand curve form the origin to the quantity purchased.
B)the area under the supply curve form the origin to the quantity produced.
C)the area under the demand curve but above the price line from the origin to the quantity purchased.
D)the area under the supply curve but below the price line from the origin to the quantity purchased.

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. It is calculated by finding the area under the demand curve but above the price line from the origin to the quantity purchased. So, option C is the correct answer. Option A is incorrect because the area under the demand curve from the origin to the quantity purchased is the total revenue received by the seller, not the consumer surplus. Option B and D are incorrect because they refer to the producer surplus, not the consumer surplus.

Question 18

The value to the consumer is based upon adding up
A)The most each consumer is willing to pay for a good.
B)The least a firm is willing to sell the good for.
C)The average of the most a consumer is willing to pay for a good and the least a firm is willing to sell the good for.
D)The difference between most a consumer is willing to pay for a good and the least a firm is willing to sell the good for.

Accepted Answer

The value to the consumer is determined by the maximum amount they are willing to pay for a good, reflecting their personal valuation or utility derived from the good.

Question 19

For an economist to say that too much of the good is produced, what must be true?
A)The consumer surplus plus the producer surplus must be smaller than it could be.
B)The consumer surplus must be smaller than optimal.
C)The consumer surplus must be larger than optimal.
D)The producer surplus must be smaller than optimal.

Accepted Answer

When an economist says that too much of a good is produced, it implies that resources are being allocated inefficiently, leading to a situation where the combined consumer and producer surplus is smaller than it could be if resources were allocated optimally. This inefficiency typically results from overproduction, where the marginal cost of production exceeds the marginal benefit to consumers, leading to a net loss in total surplus.

Question 20

For an economist to say that too little of the good is produced, what must be true?
A)The consumer surplus plus the producer surplus must be smaller than it could be.
B)The consumer surplus must be smaller than optimal.
C)The consumer surplus must be larger than optimal.
D)The producer surplus must be smaller than optimal.

Accepted Answer

When an economist says that too little of a good is produced, it implies that the total welfare (consumer surplus plus producer surplus) is not maximized. This means that the sum of consumer and producer surplus could be larger if more of the good were produced and consumed, indicating inefficiency in the market.

Quiz 3: The Concept of Elasticity and Consumer and Producer Surplus

When attempting to correct cases of "market failure", economists usually seek policies that maximize

The fact that the demand for luxury cars is elastic is not surprising because

The amount of money consumers pay producers is

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the consumer surplus is a

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the producer surplus is a

The net cost to society from prohibiting the operation of a competitive market in equilibrium is

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the money the consumer pays the producer is a

If a given reduction in market demand causes the market equilibrium price to decrease by a very large percentage while equilibrium quantity purchased decreases by a very small percentage,

The variable cost to the producer

The value of the market to society is

The producer surplus

The difference between the value of a product enjoyed by consumers and the total variable costs incurred by producers in a competitive market for that product is

The net gain to society from the operation of a competitive market in equilibrium is

For a linear and upward sloping supply curve, when the consumer has to pay a positive price for the good, the variable cost to the producer consumer is a

For a linear and upward sloping supply curve and a linear downward sloping demand curve, when the consumer has to pay a positive price for the good, the value to society of the market is a

For a linear and downward sloping demand curve, when the consumer has to pay a positive price for the good, the value to the consumer is a

The consumer surplus is

The value to the consumer is based upon adding up

For an economist to say that too much of the good is produced, what must be true?

For an economist to say that too little of the good is produced, what must be true?