Question 1

The total surplus gained by all the participants in a competitive market is the area between the _____ up to the equilibrium level of output.
A)demand curve and the equilibrium price line
B)demand curve and the supply curve
C)demand curve and the horizontal axis
D)equilibrium price line and the horizontal axis

Accepted Answer

The total surplus gained by all the participants in a competitive market is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay. Producer surplus is the difference between the price at which a producer is willing to sell a good and the actual price they receive. Both of these are represented by the demand and supply curves respectively. Therefore, the area between the demand curve and the supply curve up to the equilibrium level of output represents the total surplus gained by all participants.

Question 2

When a price ceiling is imposed in a competitive market at a level below the equilibrium price:
A)the gain to producers outweighs the loss to consumers.
B)the output level becomes inefficient.
C)the total surplus in the market is not affected.
D)the producer surplus is increased.

Accepted Answer

When a price ceiling is imposed at a level below the equilibrium price, the price is not sufficient to cover the cost of production for some producers. As a result, these producers may exit the market, reduce their output level, or compromise on the quality of their product. This leads to an inefficient allocation of resources and a decrease in the total surplus in the market. Additionally, consumers may experience shortages and long waiting times for the product. Therefore, option B is the best choice.

Question 3

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price PS1U1B12S1U1B0 and quantity QS1U1B12S1U1B0 in a competitive market. -Refer to Figure 10-2.What is the deadweight loss if a price ceiling is imposed at the price level P₃ in this market? A)b + f + c + g B)b + c + d + e C)c + g D)d + e

Accepted Answer

If a price ceiling is imposed at the price level P₃, the maximum price at which buyers are willing to purchase is below the market equilibrium price, causing excess demand or a shortage of quantity demanded over quantity supplied. The deadweight loss can be calculated as the loss of producer and consumer surplus due to the distortion of market outcomes by the price ceiling. In this case, the deadweight loss would be the area of triangle c and triangle g, which represents the reduction in producer and consumer surplus, respectively. Therefore, the answer is C.

Question 4

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P₂and quantity B. Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____. A)LFP₂ B)LFGP₁ C)LFM D)LFIP₁

Accepted Answer

The answer of The following figure shows the effect of...

Question 5

What is meant by a deadweight loss?
A)It is the aggregate loss in total surplus in an inefficient market.
B)It is the total loss in producer surplus due to output being at an inefficient level.
C)It is the sum of the consumer and producer surpluses in an inefficient market.
D)It is the loss in consumer surplus due to a price ceiling or floor in the market.

Accepted Answer

Deadweight loss refers to the total loss of economic efficiency in the market. It occurs when the equilibrium quantity and price are not achieved due to distortion in the market caused by intervention, such as taxes or subsidies. Deadweight loss is the aggregate loss in total surplus in an inefficient market. It is the economic cost of a market distortion or inefficiency.

Question 6

Suppose the demand for raspberry frozen yogurt can be represented by the equation Q_D = 5 - 2P,and the supply is given by the equation Q_S = 3P.Which of the following is the best estimate of the consumer surplus in this market? A)$2 B)$1.25 C)$2.25 D)$3.75

Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay for a good and the price they actually pay. In this case, the demand curve is Q_D = 5 - 2P, which means that consumers are willing to pay a maximum of $2.50 for a unit of raspberry frozen yogurt. The supply curve is Q_S = 3P, which means that producers are willing to sell a unit of raspberry frozen yogurt for $1.25. Therefore, the consumer surplus is $2.50 - $1.25 = $1.25.

Question 7

The level of output produced by a firm is efficient if _____ at that level of output.
A)marginal benefit equals marginal cost
B)total cost equals total revenue
C)fixed cost equals price
D)average variable cost equals average revenue

Accepted Answer

When marginal benefit equals marginal cost, the firm is producing at the point where the additional benefit received from producing one more unit is equal to the additional cost of producing that unit. This is seen as the most efficient level of production, as any deviation from this point would result in a decrease in overall profit.

Question 8

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price PS1U1B12S1U1B0 and quantity QS1U1B12S1U1B0 in a competitive market.  
-Refer to Figure 10-2.What is the producer surplus at the equilibrium level of output?
A)f + g + j
B)f + g + h + i + j
C)f + g
D)i + h + g + f

Accepted Answer

Producer surplus is the area above the supply curve but below the equilibrium price. In this case, it includes areas f, g, and j.

Question 9

The long-run supply curve in a constant-cost competitive industry is a(n)_____ line.
A)horizontal
B)vertical
C)downward sloping
D)upward sloping

Accepted Answer

In a constant-cost competitive industry, the costs of production do not change regardless of the industry's output level. Therefore, firms can enter or exit the industry without affecting the market price, resulting in a horizontal long-run supply curve.

Question 10

Suppose the demand for ice cream sundaes can be represented by the equation Q_D = 10 - P,and the supply is given by the equation Q_S = P.Which of the following is the best estimate of the producer surplus in this market? A)$5 B)$10 C)$12.5 D)$22.5

Accepted Answer

To calculate producer surplus, we need to find the area above the supply curve and below the market price. In this case, the market price will be where the demand curve intersects the supply curve, so we can set the two equations equal to each other and solve forP:
10 -P = P 
Solving forP, we get P = $5.

Plugging this price back into either the demand or supply equation, we can find the corresponding quantity, in this caseQ =5 sundaes.

To find producer surplus, we need to calculate the area above the supply curve and below the price of $5. This is a right triangle with a base ofQ=5 and a height of $5, so the area is (1/2) x 5 x 5 = $12.50. Therefore, the best estimate for producer surplus is $12.50, which corresponds to answer choice C.

Question 11

Suppose an increasing-cost competitive industry is in equilibrium at a price of $100 and an output of 1,000 units.When a price ceiling of $80 is imposed the quantity traded in the market reduces to 800 units.Which of the following is true?
A)Consumer surplus will increase and producer surplus will fall,but total surplus stays the same.
B)Consumer surplus will fall and producer surplus will increase,keeping total surplus unchanged.
C)Consumer surplus may or may not fall but producer surplus will fall.
D)Consumer surplus will remain unchanged,but producer surplus and total surplus will fall.

Accepted Answer

When the price ceiling of $80 is imposed, the market quantity reduces to 800 units which is less than the equilibrium quantity of 1,000 units. This means that the price ceiling causes a shortage in the market because the quantity demanded exceeds the quantity supplied. As a result, the consumer surplus may or may not fall depending on how much the consumers value the good relative to the price they pay. However, the producer surplus will fall because the price ceiling reduces their ability to charge higher prices for their goods. Therefore, Choice C is the correct answer.

Question 12

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price PS1U1B12S1U1B0 and quantity QS1U1B12S1U1B0 in a competitive market.  
-Refer to Figure 10-2.What is the consumer surplus at the equilibrium level of output?
A)a + b + f + g + h
B)a + b + c + d
C)a + b + c + f + g
D)a + b + c

Accepted Answer

Consumer surplus is the area above the price level and below the demand curve up to the equilibrium quantity. In this case, it includes areas a, b, and c.

Question 13

The equilibrium of a competitive industry is:
A)equitable but not necessarily efficient.
B)efficient.
C)not always efficient.
D)neither efficient nor equitable.

Accepted Answer

The equilibrium of a competitive industry is efficient because it maximizes total economic surplus, which means that there is no way to make anyone better off without making someone else worse off. It may not be equitable, as some participants may benefit more than others, but efficiency is the primary goal of a competitive market. Therefore, option B is the correct answer.

Question 14

The area under the supply curve represents _____.
A)the variable cost of producing the good or service
B)the fixed cost of producing the good or service
C)the marginal value to the firm from producing the good or service
D)the total revenue earned by the firm from selling the good or service

Accepted Answer

The area under the supply curve represents the variable cost of producing the good or service. This is because the supply curve typically reflects the marginal cost of production, which includes variable costs that change with the level of output. Fixed costs, on the other hand, do not vary with output and are not represented by the supply curve. The marginal value to the firm and total revenue are related to the demand side and the price at which goods are sold, not the costs represented by the supply curve.

Question 15

What is meant by consumer surplus?
A)It is the total quantity of a good bought by a consumer divided by the price paid.
B)It is a measure of an individual consumer's utility from the consumption of a good.
C)It is the difference between a consumer's maximum willingness to pay and the price.
D)It is a measure of the total benefit to consumers from the purchase of a good.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price paid. It represents the benefit or surplus that the consumer receives from purchasing the good. Therefore, option C is the correct definition of consumer surplus.

Question 16

In the long run,aggregate producer surplus is zero in:
A)industries with positive accounting profits.
B)industries with a positive economic profit.
C)decreasing-cost industries.
D)constant-cost competitive industries.

Accepted Answer

In constant-cost competitive industries, the entry of new firms does not affect the prices, hence the producer surplus remains constant. In the long run, the producer surplus is zero because any positive profits would attract new firms, which would increase supply and decrease prices until only normal profits are being earned, and any losses would cause firms to exit the industry, decreasing supply and increasing prices until normal profits are being earned. Therefore, in the long run, the producer surplus is zero.

Question 17

When a price ceiling is imposed on a competitive market at a level equal to the equilibrium price:
A)consumer surplus is increased.
B)producer surplus is increased.
C)both producer and consumer surplus is reduced.
D)total surplus remains unchanged.

Accepted Answer

When a price ceiling is set at the equilibrium price, it does not affect the market because the price that sellers are willing to accept and buyers are willing to pay is the same as the ceiling. Therefore, the quantity supplied and demanded remains at the equilibrium level, and total surplus (the sum of consumer and producer surplus) remains unchanged.

Question 18

Producer surplus is calculated as _____.
A)the area between the price line and the supply curve up to the equilibrium level of output
B)the area between the supply curve and the X-axis up to the equilibrium level of output
C)the area between the price line and the demand curve up to the equilibrium level of output
D)the area between the demand curve and the supply curve up to the equilibrium level of output

Accepted Answer

Producer surplus is the difference between the price that producers receive for their goods and the minimum price they would have been willing to accept for producing that quantity. It is calculated as the area between the price line and the supply curve up to the equilibrium level of output.

Question 19

What is meant by producer surplus?
A)It is the total quantity of a good produced by the seller.
B)It is the difference between the producer's marginal cost and the price.
C)It is the difference between a producer's minimum selling price and the actual price.
D)It is a measure of the total benefit to producers resulting from the purchase of an input.

Accepted Answer

Producer surplus is the difference between what producers are willing to accept for a good or service versus what they actually receive. It's essentially the extra benefit producers get from selling at a market price that is higher than the minimum they would be willing to accept.

Question 20

When the efficient rate of output is produced in the short run:
A)marginal cost is greater than marginal benefit.
B)the producer surplus is as large as possible.
C)the total surplus is as large as possible.
D)marginal benefit is greater than marginal cost.

Accepted Answer

In the short run, when the efficient rate of output is produced, it means that resources are allocated in the most efficient way possible, maximizing the total surplus, which includes both consumer and producer surplus. This is a fundamental concept in economics, indicating that the market is operating efficiently and welfare is maximized.

Quiz 10: Using the Competitive Model

The total surplus gained by all the participants in a competitive market is the area between the _____ up to the equilibrium level of output.

When a price ceiling is imposed in a competitive market at a level below the equilibrium price:

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price P₂ and quantity Q₂ in a competitive market. -Refer to Figure 10-2.What is the deadweight loss if a price ceiling is imposed at the price level P₃ in this market?

The following figure shows the effect of a price ceiling in the market for yams.The market was initially in equilibrium at price P₂and quantity B. Refer to Figure 10-1.The total surplus at the initial point of equilibrium,F,is given by _____.

What is meant by a deadweight loss?

Suppose the demand for raspberry frozen yogurt can be represented by the equation Q_D = 5 - 2P,and the supply is given by the equation Q_S = 3P.Which of the following is the best estimate of the consumer surplus in this market?

The level of output produced by a firm is efficient if _____ at that level of output.

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price P₂ and quantity Q₂ in a competitive market. -Refer to Figure 10-2.What is the producer surplus at the equilibrium level of output?

The long-run supply curve in a constant-cost competitive industry is a(n) _____ line.

Suppose the demand for ice cream sundaes can be represented by the equation Q_D = 10 - P,and the supply is given by the equation Q_S = P.Which of the following is the best estimate of the producer surplus in this market?

Suppose an increasing-cost competitive industry is in equilibrium at a price of $100 and an output of 1,000 units.When a price ceiling of $80 is imposed the quantity traded in the market reduces to 800 units.Which of the following is true?

Use the following figure to answer the questions : Figure 10-2 :shows the intersection of demand and supply at the price P₂ and quantity Q₂ in a competitive market. -Refer to Figure 10-2.What is the consumer surplus at the equilibrium level of output?

The equilibrium of a competitive industry is:

The area under the supply curve represents _____.

What is meant by consumer surplus?

In the long run,aggregate producer surplus is zero in:

When a price ceiling is imposed on a competitive market at a level equal to the equilibrium price:

Producer surplus is calculated as _____.

What is meant by producer surplus?

When the efficient rate of output is produced in the short run: