Question 1

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 minimum price at which producers would have been willing to supply a given quantity of a good. When producers are willing to supply a larger quantity of a good at a lower price than the market clearing price, the difference between what they would have received and what they actually receive (the market price) adds up to their producer surplus. Monopoly profits are the excess profits earned by a single supplier in a market with few or no competitors. Opportunity cost is the value of the next best alternative that is given up when making a choice. Deadweight loss is the loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved.

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 the government imposes a price ceiling that is lower than the market clearing price, it creates a shortage of the good or service, because there will be excess demand at the lower price. As a result, both consumers and producers will be worse off, because there will be less of the good available in the market. Consumers may benefit from lower prices, but they will also have to wait in long lines or may not be able to find the product at all. Producers, on the other hand, will have lower revenues and may have to lay off workers or shut down production. Therefore, both consumer surplus and producer surplus will decrease.

Question 3

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

When the market clearing price increases, producer surplus increases as well. This is because the producer is getting a higher price for their product, which increases their profit margin and therefore their surplus.

Question 4

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 what a producer receives for a good or service and what they would have been willing to accept. In other words, it is the additional amount of profit a producer makes above and beyond what they needed to make to produce the good or service.

Question 5

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 in a market is measured as the area above the market clearing price and beneath the market demand curve, as this represents the difference between what consumers are willing to pay for a good or service (as represented by the demand curve) and what they actually have to pay (the market price).

Question 6

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 or service and what they actually pay for it. In this case, Niki is willing to pay up to $5 for an ice-cream bar but pays only $2. Therefore, her consumer surplus is the difference between what she is willing to pay ($5) and what she actually paid ($2), which is $3. So, the answer is B.

Question 7

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 highest price consumers are willing to pay for a good and the actual market price they pay, while producer surplus is the difference between the lowest price a producer is willing to accept for a good and the actual market price they receive. At the market clearing price, consumers and producers are able to reach mutually beneficial transactions resulting in the highest total amount of consumer and producer surplus. Price floors and price ceilings distort the market and result in deadweight loss, reducing the total surplus. Without free market exchanges, there would be no consumer or producer surplus at all.

Question 8

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, more consumers are able and willing to purchase the good or service at the lower price, leading to an increase in consumer surplus. This is because consumers who were previously priced out of the market are now able to purchase the good or service at a lower price, increasing their consumer surplus.

Question 9

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 can be measured as the sum of consumer surplus and producer surplus. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual market price. Producer surplus is the difference between the minimum price a producer is willing to accept for a good and the actual market price. When a trade occurs, both the consumer and the producer are better off and the sum of their surpluses represents the gains from trade.

Question 10

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

This is the definition of producer surplus. It represents the benefit that producers receive from participating in a market and is calculated as the difference between the market price and the marginal cost of production for each unit sold.

Question 11

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

Consumer surplus and producer surplus occur when there is voluntary exchange between consumers and producers. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay, while producer surplus is the difference between what producers receive for a good and the minimum price they are willing to accept. This occurs in a market where consumers are willing to pay more than the minimum price producers are willing to accept, leading to gains for both parties.

Question 12

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. It is the extra benefit or utility that consumers receive when they pay less than the maximum amount they are willing to pay for a product or service. It is calculated by subtracting the market price from the maximum amount a consumer would be willing to pay for a product or service.

Question 13

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 the government imposes a price floor higher than the equilibrium price, there will be excess supply as quantity supplied exceeds quantity demanded. This excess supply will lead to a surplus, as producers will be willing to supply more products at the higher price, while consumers will demand less at the higher price. As a result, both consumer surplus and producer surplus will decrease. The decrease in consumer surplus will be due to a decrease in the quantity demanded, while the decrease in producer surplus will be due to an increase in production costs and excess supply. Therefore, choice C is the best answer.

Question 14

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 15

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 a consumer would be willing to pay for a good or service and the price they actually pay. If consumers are willing to pay higher prices at various quantities consumed than the market clearing price, then they are experiencing consumer surplus. Monopoly profits refer to the extra profit earned by a monopolist in a market with no competition, which is not related to consumer willingness to pay. Opportunity cost refers to the value of the next best alternative forgone, which is also not related to consumer willingness to pay. Deadweight loss refers to the loss of economic efficiency that occurs when a market is not working at its optimal level, which is also not directly related to consumer surplus.

Question 16

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 a good or service and the price they actually pay. This means that the consumer is getting more value from the purchase than what they paid for it. Option A is incorrect because it states "the total amount that consumers actually pay", which is not the correct definition. Option B is incorrect because it focuses on the costs of production for firms, whereas consumer surplus is about consumer value. Option D is incorrect because it focuses on costs for firms and not on the willingness to pay of consumers.

Question 17

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 18

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 at which producers are willing to sell a good and the price they actually receive. This is measured as the area bounded below the market clearing price and above the market supply curve since this represents the total amount that producers are receiving above and beyond their cost of production.

Question 19

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 sell a product for and the price they actually receive. In this case, the producer is willing to receive at least $5 for the pen but actually receives $7 for it. Therefore, the producer surplus is $7 - $5 = $2. The answer is not A or C because those options represent the amount the producer is willing to receive, not the actual amount she receives. The answer is not D because producer surplus cannot be negative.

Quiz 3: Extensions of Demand and Supply Analysis

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

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

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

Producer surplus 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

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

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

The gains from trade within a price system is

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

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

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

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

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

Consumer surplus is

The total gains from trade within a price system is

Total producer surplus in a market is measured as the

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