Question 1

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
A)production excess.
B)excess demand.
C)market surplus.
D)producer surplus.

Accepted Answer

The difference between what producers would have been willing to accept and what they actually received is called producer surplus. It is the measure of the benefit that producers receive from selling their goods at a given market price.

Question 2

If the government imposes a price ceiling that is lower than the market clearing price, then
A)consumer surplus will increase while producer surplus will decrease.
B)consumer surplus will decrease while producer surplus will increase.
C)both consumer surplus and producer surplus will decrease.
D)both consumer surplus and producer surplus will increase.

Accepted Answer

When a price ceiling is imposed and it is lower than the market clearing price, it leads to excess demand as quantity demanded exceeds quantity supplied at the price ceiling. This shortage in the market leads to several negative consequences. Firstly, since consumers are willing to pay more than the price ceiling, they will queue up in larger numbers, and some may not be able to purchase the good at all, resulting in a decrease in consumer surplus. Secondly, since producers cannot charge the market price, they will reduce their supply, leading to a decrease in producer surplus. Overall, both consumer and producer surplus will decrease in this scenario.

Question 3

The gains from consumer surplus and producer surplus occur when
A)both consumers and producers engage in voluntary exchange.
B)consumers are willing to buy a good but producers are not willing to provide it.
C)producers are willing to provide a good but consumers are not willing to pay for it.
D)the government supplies the good instead of firms.

Accepted Answer

Both consumers and producers benefit from voluntary exchange, as consumers are willing to pay a certain price for a good or service and producers are willing to provide it at that price. This results in gains from consumer surplus (the difference between the maximum price a consumer is willing to pay and the actual price paid) and producer surplus (the difference between the minimum price a producer is willing to accept and the actual price received), which are measures of economic welfare. Option B and C describe situations where there is no voluntary exchange, leading to a deadweight loss instead of gains from surplus. Option D suggests the government is involved, but does not necessarily indicate whether there is voluntary exchange or not.

Question 4

The total amount of consumer surplus and producer surplus is at its maximum when
A)consumers and producers are allowed to trade at the market clearing price.
B)the government imposes a price floor that is higher than the market clearing price.
C)the government imposes a price ceiling that is lower than the market clearing price.
D)free market exchanges do not exist.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price they pay. Producer surplus is the difference between the minimum price a producer is willing to accept for a good and the actual price they receive. At the market clearing price, both consumers and producers are able to find a price they are willing to participate in the transaction, maximizing the total surplus (consumer plus producer surplus). Price floors and ceilings disrupt market equilibrium, leading to either a surplus (if the price floor is above the market clearing price) or a shortage (if the price ceiling is below the market clearing price). And free market exchanges are necessary for any surplus to exist in the first place.

Question 5

The total gains from trade within a price system is
A)the area beneath the market demand curve and above the market clearing price plus the area above the market supply curve and beneath the market clearing price.
B)the area beneath the market supply curve and above the market clearing price plus the area above the market demand curve and beneath the market clearing price.
C)the area beneath the market demand curve and above the market clearing price minus the area beneath the market supply curve and beneath the market clearing price.
D)always equal to zero.

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 6

Total producer surplus in a market is measured as the
A)area bounded above the market clearing price and beneath the market demand curve.
B)area bounded below the market clearing price and above the market supply curve.
C)vertical distance from the horizontal (quantity)axis to the market clearing price.
D)horizontal distance from the vertical (price)axis to the equilibrium quantity.

Accepted Answer

Producer surplus is the difference between the price a producer receives and the minimum price they are willing to sell for. This is represented by the area below the market price and above the supply curve. Therefore, the correct measure of total producer surplus is the area bounded below the market clearing price and above the market supply curve, as described in option B. Options A, C, and D do not accurately define or measure producer surplus.

Question 7

For a given market demand curve, if the market clearing price decreases, then the amount of consumer surplus will
A)decrease.
B)increase.
C)become negative.
D)none of the above due to insufficient information.

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 8

When producers would have been willing to accept lower prices at various quantities produced than the market clearing price, the differences are called
A)producer surplus.
B)monopoly profits.
C)opportunity cost.
D)deadweight loss.

Accepted Answer

Producer surplus is the difference between the market price and the willingness of producers to produce and sell a good or service. When producers are willing to accept lower prices than the market clearing price, it means they are making more profit than they would have if they had to sell at the lower price. This extra profit is the producer surplus.

Question 9

When consumers would have been willing to pay higher prices at various quantities consumed than the market clearing price, the differences are called
A)consumer surplus.
B)monopoly profits.
C)opportunity cost.
D)deadweight loss.

Accepted Answer

Consumer surplus refers to the difference between the highest price that a consumer is willing to pay for a good or service and the price they actually have to pay in the market. Therefore, when consumers are willing to pay higher prices than the market clearing price, the difference is their consumer surplus.

Question 10

As compared to the market clearing price, the total amount of consumer surplus and producer surplus is
A)greater for a government-imposed price floor that is higher than that market clearing price.
B)greater for a government-imposed price ceiling that is lower than that market clearing price.
C)the same as a government-imposed price floor that is higher than that market clearing price.
D)smaller for a government-imposed price ceiling that is lower than that market clearing price.

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 11

If the government imposes a price floor that is higher than the market clearing price, then
A)consumer surplus will increase while producer surplus will decrease.
B)consumer surplus will decrease while producer surplus will increase.
C)both consumer surplus and producer surplus will decrease.
D)both consumer surplus and producer surplus will increase.

Accepted Answer

If the government imposes a price floor that is higher than the market clearing price, it will lead to excess supply because the quantity supplied will be higher than the quantity demanded. This will result in a surplus of goods that will not be bought by consumers. This surplus will put pressure on the sellers to lower the price to the equilibrium level. However, since the government has imposed a price floor that is higher, sellers are not allowed to lower the price. As a result, both consumer surplus and producer surplus will decrease. Consumers will end up paying a higher price than the market clearing price, resulting in a decrease in consumer surplus. Producers will end up producing more than what the consumers are willing to buy, resulting in a decrease in producer surplus.

Question 12

The gains from trade within a price system is
A)the sum of consumer surplus and producer surplus.
B)consumer surplus less producer surplus.
C)consumer surplus divided by producer surplus.
D)consumer surplus multiplied by producer surplus.

Accepted Answer

The gains from trade within a price system are the net benefits realized by both consumers and producers through voluntary exchange. These net benefits are the sum of the consumer surplus (the difference between what consumers are willing to pay for a good and what they actually pay) and the producer surplus (the difference between the price producers receive for a good and the minimum price they are willing to accept). Therefore, the correct answer is A.

Question 13

Total consumer surplus in a market is measured as the
A)area bounded above the market clearing price and beneath the market demand curve.
B)area bounded below the market clearing price and above the market supply curve.
C)vertical distance from the horizontal (quantity)axis to the market clearing price.
D)horizontal distance from the vertical (price)axis to the equilibrium quantity.

Accepted Answer

Total consumer surplus is the area between the market demand curve and the market clearing price. It represents the amount of value consumers derive from a market transaction above and beyond what they paid for the good or service. Thus, option A correctly describes the measurement of total consumer surplus.

Question 14

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
A)is $2.
B)is $3.
C)is $7.
D)cannot be determined without information about the market structure.

Accepted Answer

Consumer surplus is the difference between the maximum price that a consumer is willing to pay and the actual price paid. Here, Niki is willing to pay up to $5 for the ice-cream bar, but she only pays $2. Therefore, her consumer surplus is $5-$2=$3.

Question 15

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
A)$5.
B)$2.
C)$7.
D)-$5.

Accepted Answer

Producer surplus is the difference between the price a producer is willing to receive and the price they actually receive.

Producer surplus = Actual price received - Minimum price willing to accept

Therefore, in this case,

Producer surplus = $7 - $5 = $2

So, the correct choice is B.

Question 16

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
A)production excess.
B)excess demand.
C)market surplus.
D)consumer surplus.

Accepted Answer

This calculation gives us the consumer surplus, which is the difference between what consumers are willing to pay (based on their individual marginal utility) and the market price they actually pay. The consumer surplus is the benefit consumers receive from being able to purchase a good at a lower price than their maximum willingness to pay.

Question 17

For a given market demand curve, if the market clearing price increases, then the amount of producer surplus will
A)decrease.
B)increase.
C)become negative.
D)none of the above due to insufficient information.

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.

Question 18

Producer surplus is
A)the total difference between the total amount that producers actually receive for an item and the total amount that they would have been willing to accept.
B)the total difference between the total costs firms incur in producing an item and the utility consumers derive from purchasing the item.
C)the total difference between the total amount that consumers are willing to pay for an item and the total amount that producers would like to receive.
D)the total difference between the utility consumers derive from purchasing an item and the total costs firms incur in producing the item.

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 accept for the product. This means that the producer is receiving more than they expected or demanded for the product, which increases their revenue and profits.

Quiz 4: Extensions of Demand and Supply Analysis

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

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

The gains from consumer surplus and producer surplus occur when

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

The total gains from trade within a price system is

Total producer surplus in a market is measured as the

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

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

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

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

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

The gains from trade within a price system is

Total consumer surplus in a market is measured as the

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

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

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

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

Producer surplus is