Question 1

When consumers would have been willing to pay higher prices at various quantities consumed than the market clearing price, the differences are called

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. When consumers are willing to pay more than the market price, they experience a surplus value or satisfaction, and this represents consumer surplus.

Question 2

Total consumer surplus in a market is measured as the

Accepted Answer

Total consumer surplus is the difference between the total value that consumers place on a good or service and the total amount that they actually pay for it. This is measured as the area bounded above the market clearing price and beneath the market demand curve. This represents the value that consumers receive from purchasing the good at a price lower than what they would be willing to pay.

Question 3

The total amount of consumer surplus and producer surplus is at its maximum when

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid, while producer surplus is the difference between the minimum price a producer is willing to sell for and the actual price received. When consumers and producers are allowed to trade at the market clearing price, it means that the quantity demanded equals the quantity supplied, and both parties are able to gain the maximum amount of surplus possible. This is because at the market clearing price, all units of the good that are demanded are supplied and all units of the good that are supplied are demanded. Therefore, there is no deadweight loss, and the total amount of consumer surplus and producer surplus is at its maximum.

Question 4

If a producer is willing to receive at least $5 for a pen that she manufactures but she actually receives $7 for it. The producer surplus of the pen for that producer is

Accepted Answer

Producer surplus is the difference between the price a producer is willing to receive and the actual price received. In this case, the producer is willing to receive $5 but actually receives $7, resulting in a surplus of $2. Therefore, the answer is B, $2.

Question 5

If the government imposes a price ceiling that is lower than the market clearing price, then

Accepted Answer

When a price ceiling is imposed below the market clearing price, it creates a shortage (quantity demanded exceeds quantity supplied). As a result, some consumers will not be able to purchase the good or service at the lower price, while some producers may choose not to supply the good or service at the lower price. This leads to a reduction in both consumer surplus (because some consumers are willing to pay more than the price ceiling but cannot) and producer surplus (because some producers are willing to receive a higher price but cannot).

Question 6

For a given market demand curve, if the market clearing price decreases, then the amount of consumer surplus will

Accepted Answer

When the market clearing price decreases, it means that consumers can now purchase the product at a lower price than before. This results in an increase in consumer surplus because consumers are able to enjoy the same amount of product, but at a lower price, generating more surplus. Therefore, the correct choice is B.

Question 7

Total producer surplus in a market is measured as the

Accepted Answer

Total producer surplus is measured as the area bounded below the market clearing price and above the market supply curve. This represents the excess profit earned by producers at the prevailing market price. The area above the market clearing price and below the market demand curve represents consumer surplus, while the distance from the horizontal axis to the market clearing price represents the quantity demanded or supplied at the equilibrium price. The distance from the vertical axis to the equilibrium quantity represents the total revenue earned by producers at the equilibrium price.

Question 8

The difference between the total amount that people would have been willing to pay for the total quantity produced and consumed in a market and what they actually pay at the market clearing price is called

Accepted Answer

The difference between what people would be willing to pay and what they actually pay at the market clearing price represents the extra value or benefit (surplus) that consumers receive from a product. This is known as consumer surplus. A, B, and C are incorrect because they do not accurately describe this concept.

Question 9

When producers would have been willing to accept lower prices at various quantities produced than the market clearing price, the differences are called

Accepted Answer

Producer surplus represents the difference between the market price and the minimum price required by producers to supply a given quantity of output. If producers are willing to accept lower prices than the market clearing price, then they will have additional surplus or profit, which is called producer surplus.

Question 10

The total gains from trade within a price system is

Accepted Answer

The total gains from trade within a price system are represented by the sum of consumer surplus and producer surplus. Consumer surplus is the area beneath the market demand curve and above the market clearing price, while producer surplus is the area above the market supply curve and beneath the market clearing price. Therefore, option A correctly describes the total gains from trade.

Question 11

The gains from trade within a price system is

Accepted Answer

The gains from trade within a price system represent 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 cost of production). Therefore, the correct answer is A.

Question 12

Producer surplus is

Accepted Answer

Producer surplus is the difference between the amount that producers receive for an item and the minimum amount they would be willing to accept for it. This represents the benefit that producers receive from selling at a higher price than they would have needed to sell for in order to produce the item.

Question 13

The difference between the total amount that producers would have been willing to accept for the total quantity produced in a market and what they actually received at the market clearing price is called

Accepted Answer

The situation described in the question is referring to the concept of producer surplus. Producer surplus is the difference between the total revenue received by producers and their willingness to accept a lower price for the quantity produced. In other words, it is the benefit that producers receive from selling their products at a price higher than the minimum price they would be willing to accept. Option A, B, and C are not correct as they do not adequately describe the situation in the question.

Question 14

Consumer surplus is

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually end up paying. Therefore, it is the total difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay.

Question 15

If the government imposes a price floor that is higher than the market clearing price, then

Accepted Answer

A price floor that is higher than the market clearing price creates a surplus of supply (quantity supplied exceeds quantity demanded) which leads to a decrease in both consumer and producer surplus. Consumers will be willing to pay less than the price floor for the excess supply and producers will have to accept a lower price for the excess supply, leading to a loss of surplus for both parties.

Question 16

If Niki is willing to pay up to $5 for an ice-cream bar but she actually pays $2 for it. The consumer surplus of the ice-cream bar for Niki

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good/service and the actual price paid. In this case, Niki was willing to pay up to $5 but she only paid $2, so her consumer surplus is $3 ($5 - $2). Therefore, the correct answer is B.

Question 17

As compared to the market clearing price, the total amount of consumer surplus and producer surplus is

Accepted Answer

A government-imposed price ceiling that is lower than the market clearing price typically results in a shortage, as the quantity demanded exceeds the quantity supplied at that price. This leads to a decrease in both consumer and producer surplus, making the total surplus smaller compared to the market equilibrium where the market clearing price allows the quantity demanded to equal the quantity supplied.

Question 18

The gains from consumer surplus and producer surplus occur when

Accepted Answer

Consumer surplus is the difference between the highest price a consumer is willing to pay for a good and the actual price they pay. Producer surplus is the difference between the lowest price a producer is willing to receive for a good and the actual price they receive. Both of these gains occur when consumers and producers engage in voluntary exchange, as they both receive benefits from the transaction. Options B, C, and D do not describe situations where both consumers and producers benefit from voluntary exchange.

Question 19

For a given market demand curve, if the market clearing price increases, then the amount of producer surplus will

Accepted Answer

Producer surplus increases when the market clearing price increases because producers are able to sell their goods at a higher price, which increases the difference between the market price and the minimum price at which producers are willing to sell.

Quiz 4: Extensions of Demand and Supply Analysis