Question 1

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 2

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 actual price received by the producer and the minimum price they were willing to accept. In this case, the producer was willing to accept $5 for a pen but received $7 for it. Therefore, the producer surplus is $2 ($7 - $5). Option B is the correct answer.

Question 3

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 below the market clearing price, it creates excess demand or a shortage in the market. This means that some consumers who were willing to buy at the higher market price will no longer be able to buy at the lower price ceiling. As a result, consumer surplus will decrease. On the other hand, at the lower price ceiling, some producers may choose not to produce the good or supply less of it, since they cannot make as much profit as they could at the higher market price. This reduced production or supply will decrease producer surplus. Thus, both consumer and producer surplus will decrease.

Question 4

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 5

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

When a price floor is imposed above the market clearing price, it creates a surplus of supply, leading to a decrease in consumer surplus as buyers who are willing to pay the market price are either unable or unwilling to buy the product at the higher price. On the other hand, the producers benefit from this situation, as they are now able to sell their products at a higher price, resulting in an increase in the producer surplus. However, overall, both consumer and producer surplus are reduced as a result of the price floor policy.

Question 6

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 and producer surplus are maximized when they are allowed to freely trade at the market clearing price, which is the equilibrium price where the quantity demanded equals the quantity supplied. This is because at this price, consumers are willing to pay exactly what producers are willing to sell for, resulting in the highest possible total surplus for both parties. Price floors and ceilings restrict the freedom to trade and often lead to inefficiencies and deadweight losses. The absence of free market exchanges would also prevent the realization of maximum surplus.

Question 7

Consumer surplus is
A) the total difference between the total amount that consumers actually pay for an item and the total amount that they would have been willing to pay.
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 would have been willing to pay for an item and the total amount that they actually pay.
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

Consumer surplus is the difference between what a consumer is willing to pay for an item and what they actually pay. This means that the total amount the consumer is willing to pay is higher than the actual amount they pay, resulting in a surplus. Therefore, choice C accurately defines consumer surplus.

Question 8

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 consumer surplus and producer surplus are generated when consumers and producers engage in voluntary exchange. Consumer surplus occurs when a consumer is willing to pay more for a good than the actual price they pay, while producer surplus occurs when a producer is willing to receive a lower price for a good than the actual price they receive. These gains occur because both parties benefit from the exchange, with consumers obtaining the good at a lower price than they are willing to pay and producers obtaining a higher price than they are willing to receive.

Question 9

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

The difference between what people are willing to pay for a product and what they actually pay is known as consumer surplus. This occurs when the market clearing price is below what consumers are willing to pay, allowing them to pay less and enjoy a surplus benefit. This is reflected in the area under the demand curve and above the market price.

Question 10

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 is the total benefits that both consumers and producers receive from engaging in market transactions. It is the sum of the consumer surplus (the difference between the maximum amount a consumer is willing to pay and the actual price) and producer surplus (the difference between the minimum price a producer is willing to accept and the actual price).

Question 11

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 is the difference between the price consumers are willing to pay for a good or service and the actual market price. It represents the benefit that consumers receive from purchasing a good or service at a price lower than what they would have been willing to pay.

Question 12

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 price at which a producer is willing to supply a good and the price the producer actually receives. It represents the amount that a producer benefits from a transaction, above and beyond the cost of producing the item.

Question 13

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 14

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 15

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

This is the definition of producer surplus, which is the difference between the price a producer receives and the minimum price they would be willing to accept for a given quantity of a good or service. This represents the benefit that producers receive from participating in a market.

Question 16

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 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 17

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

If the market clearing price decreases, then consumers who were previously willing to buy the good at a higher price can now purchase it at a lower price, thus increasing their consumer surplus. Therefore, a decrease in price would result in an increase in consumer surplus.

Question 18

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

Producer surplus is the difference between what producers would have been willing to accept for their goods or services and what they actually received at the market clearing price. It represents the benefit that producers receive from participating in the market.

Question 19

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 what a consumer is willing to pay for a good and what they actually pay. Therefore, Niki's consumer surplus for the ice-cream bar is $5-$2 = $3. Option A is incorrect because Niki's actual payment is not her consumer surplus. Option C is incorrect because her willingness to pay is only $5 and she only paid $2, so her consumer surplus cannot be greater than $3. Option D is incorrect because information about the market structure is not necessary to calculate consumer surplus.

Quiz 4: Extensions of Demand and Supply Analysis

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

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

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

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

Consumer surplus is

The gains from consumer surplus and producer surplus occur when

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

The gains from trade within a price system is

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

Producer surplus is

The total gains from trade within a price system is

Total producer surplus in a market is measured as the

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

Total consumer 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

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 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