Question 1

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

With a price ceiling at point G, point I indicates the quantity demanded (Q3)and point F indicates the quantity supplied (Q2). So excess demand is given by the distance between points F and I (Q3 − Q2).

Question 2

Which of the following is NOT necessarily true in a market equilibrium?
A)Price represents the value of an extra unit of consumption.
B)Both rich and poor have adequate access to the good.
C)Price represents the cost of an extra unit of production.
D)All mutually beneficial trades have been made.

Accepted Answer

Market equilibrium does not address issues of poverty.

Question 3

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 amount by which the price exceeds the seller's reservation price.

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

In an unregulated market, consumer surplus is the area of the triangle above the equilibrium price and below the demand curve.

Question 5

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

In an unregulated market, producer surplus is the area of the triangle below the equilibrium price and above the supply curve.

Question 6

A price ceiling that is set below the equilibrium price will result in:
A)higher total economic surplus.
B)a shortage of the good.
C)a surplus of the good.
D)higher producer surplus.

Accepted Answer

A price ceiling that is set below than the equilibrium price will prevent price from rising to its equilibrium level. As a result, there will be excess demand (or, a shortage).

Question 7

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 measures the cumulative difference between the price consumers are willing to pay and the price actually pay.

Question 8

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 9

A price ceiling that is set below the equilibrium price will cause:
A)producer surplus to fall.
B)total economic surplus to rise.
C)quantity supplied to exceed quantity demanded.
D)an increase in demand.

Accepted Answer

A price ceiling that is set below the equilibrium price will lower producer surplus both because producers will be willing to sell fewer units and because they will receive a lower price for each unit that they do sell.

Question 10

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 loss in total economic surplus is equal to the loss in consumer surplus (the area represented by EHC)plus the loss in producer surplus (the area represented by FHC).

Question 11

If the demand curve fails to capture all of the benefits of consumption, then the:
A)equilibrium price will be efficient but the equilibrium quantity will be inefficiently large.
B)equilibrium price will be inefficiently low.
C)government needs to impose regulations that require more consumption.
D)equilibrium price will be inefficiently high.

Accepted Answer

A market equilibrium is only efficient if the market supply and demand curves capture all of the relevant costs and benefits associated with production and consumption. If the demand curve does not capture all of the benefits of consumption, then the market price will be too low to encourage production of the socially optimal quantity.

Question 12

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 a buyer's reservation price minus the price the buyer actually pays.

Question 13

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

When the market is in equilibrium, buyers and sellers cannot design any mutually beneficial transactions. Thus, as long as supply and demand capture all of the relevant costs and benefits of production and consumption, total economic surplus will be maximized when the market is in equilibrium.

Question 14

A price ceiling that is set above the equilibrium price will result in:
A)a market price that is above the equilibrium price.
B)a loss in total economic surplus.
C)no change in total economic surplus.
D)an increase in consumer surplus.

Accepted Answer

A price ceiling that is above the equilibrium price will have no effect on the market.

Question 15

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 16

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

Consumer surplus is the area between the consumers' reservation prices and the price they actually pay.

Question 17

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

Producer surplus is the area below price and above the supply curve.

Question 18

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

Producer surplus plus consumer surplus equals total surplus.

Question 19

Efficiency is an important goal because when markets are efficient:
A)there is less income inequality.
B)the poor benefit more than the wealthy.
C)there are more resources available to achieve other goals.
D)there is no need for government intervention in the economy.

Accepted Answer

When markets are efficient, total economic surplus is maximized, implying that there are more resources available to achieve society's other goals.

Question 20

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

Consumer surplus is the area above price and below the demand curve, up to the quantity traded (Q2).

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

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:

Which of the following is NOT necessarily true in a market equilibrium?

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. When the market is unregulated, consumer surplus is represented by the area:

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

A price ceiling that is set below the equilibrium price will result in:

Consumer surplus is the cumulative difference between:

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

A price ceiling that is set below the equilibrium price will cause:

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 ________.

If the demand curve fails to capture all of the benefits of consumption, then the:

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:

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 ceiling that is set above the equilibrium price will result in:

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:

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

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

The sum of producer surplus and consumer surplus is:

Efficiency is an important goal because when markets are efficient:

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