Question 1

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 consumers are willing to pay for a good or service and what they actually pay. Therefore, option C correctly defines consumer surplus as 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. Option A is incorrect because it implies that consumers pay more than what they are willing to pay, which is not the case. Option B is incorrect because it refers to the total cost of production, which is not relevant to consumer surplus. Option D is incorrect because it focuses on the costs of production rather than the willingness of consumers to pay.

Question 2

What are the effects of an increase in the minimum wage? Who would be most affected?

Accepted Answer

The answer of What are the effects of an increase...

Question 3

If a producer is willing to receive at least $2 for a pen that she manufactures but she actually receives $7 for it. The producer surplus of the pen for that producer is
A) $2.
B) $5.
C) $9.
D) -$5.

Accepted Answer

Producer Surplus = Price Received - Minimum Price Producer is Willing to Accept
Producer is willing to accept at least $2 but actually receives $7, so her producer surplus is $7 - $2 = $5. Therefore, the answer is B.

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 the consumer is willing to pay and the actual price they pay, while producer surplus is the difference between the minimum price the producer is willing to accept and the actual price they receive. Both consumer and producer surplus are at their maximum when consumers and producers are allowed to trade at the market clearing price, as this ensures that all units of the product are sold and bought at the highest value possible for both parties. A price floor would result in a surplus of the good and deadweight loss, while a price ceiling would lead to a shortage and deadweight loss. The absence of free market exchanges means no consumer or producer surplus exists.

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

If the government imposes a price floor that is higher than the market clearing price, it creates a surplus of goods. This surplus occurs because suppliers are willing to supply more than consumers are willing to purchase at the higher price. As a result, both consumer surplus and producer surplus decrease. Consumers now have to pay more for the same quantity of goods while producers cannot sell all of their products, ultimately increasing inefficiency and creating deadweight loss in the market.

Question 6

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

A price ceiling that is set lower than the market clearing price creates a situation where demand exceeds supply. As a result, some consumers are able to purchase the good or service at a lower price, but some are unable to obtain it at all. This leads to a decrease in consumer surplus. At the same time, the lower price makes it less profitable for producers to supply the good or service, which leads to a decrease in producer surplus. Therefore, both consumer surplus and producer surplus will decrease.

Question 7

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 8

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) scarcity.
C) opportunity cost.
D) producer surplus.

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 (which is the market clearing price). Therefore, when consumers are willing to pay higher prices than the market price, the difference between those prices represents consumer surplus.

Question 9

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 amount that producers receive for a good or service and the minimum price that they would be willing to accept for that good. In other words, it is the extra amount of money that producers receive above and beyond what they would have been willing to accept in order to produce the good.

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

Producer surplus is the difference between the market price of a good and the lowest price producers are willing to accept for producing that good. It represents the benefit to producers from participating in a market and is calculated as the area above the supply curve and below the market price.

Question 11

If Johnny is willing to pay up to $3 for an ice-cream cone but she actually pays $1 for it. The consumer surplus of the ice-cream cone for Johnny
A) is $1.
B) is $2.
C) is $4.
D) cannot be determined without information about the market structure.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid. In this case, Johnny is willing to pay $3 but pays only $1. Therefore, the consumer surplus is $2 ($3 - $1 = $2). Thus, the correct answer is (B).

Question 12

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 13

The U.S. government imposes import quotas on many agricultural products, especially products that receive price supports. Offer an economic explanation for this.

Accepted Answer

The answer of The U.S. government imposes import quotas on...

Question 14

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 concept described in the question is that of consumer surplus - the difference between what consumers are willing to pay and what they actually pay at the market clearing price. Choices A and B are not accurate terms for this concept, and while choice C is closer, it is less specific than the term "consumer surplus."

Question 15

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 sum of the consumer surplus and the producer surplus. This is because the consumer surplus measures the value that consumers receive from a good or service over and above the price they pay, while the producer surplus measures the producer's net benefit from selling a good or service, which is the difference between the price they receive and the cost of production. Therefore, the gains from trade, which are the benefits received by both consumers and producers, are the sum of these two surpluses.

Question 16

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

Accepted Answer

As the market clearing price increases, the price that consumers are willing to pay also increases. This will decrease the consumer surplus as they are paying a higher price for the same amount of goods. Therefore, the correct answer is B, decrease.

Question 17

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) consumer surplus.

Accepted Answer

Producer surplus is the difference between the price a producer is willing to accept and the market-clearing price. It measures the benefit that producers receive from producing and selling a good.

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 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 19

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 occur when consumers and producers engage in voluntary exchange. Consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay, while producer surplus is the difference between the price received and the cost of production. Both parties only engage in the exchange if they believe the exchange will leave them better off, resulting in gains from trade. Choices B, C, and D do not describe situations where both consumer and producer surplus are gained.

Question 20

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.

Quiz 4: Extensions of Demand and Supply Analysis

Consumer surplus is

What are the effects of an increase in the minimum wage? Who would be most affected?

If a producer is willing to receive at least $2 for a pen that she manufactures but she actually receives $7 for it. The producer surplus of the pen for that producer is

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

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

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

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 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 Johnny is willing to pay up to $3 for an ice-cream cone but she actually pays $1 for it. The consumer surplus of the ice-cream cone for Johnny

Total consumer surplus in a market is measured as the

The U.S. government imposes import quotas on many agricultural products, especially products that receive price supports. Offer an economic explanation for this.

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

For a given market demand curve, if the market clearing price increases, 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

Total producer surplus in a market is measured as the

The gains from consumer surplus and producer surplus occur when

The total gains from trade within a price system is