Ch4 Surplus and Efficiency Exam Questions

Chapter 4 Consumer Surplus, Producer Surplus, and Economic Efficiency

Learning Objective Guide

LO-1: Describe consumer surplus, producer surplus, economic surplus, and deadweight loss

LO-2: Illustrate and compute consumer surplus, producer surplus, and deadweight loss

LO-3: Describe how economic surplus can represent social welfare and economic efficiency

LO-4: Assess the impact of market interventions on economic surplus and social welfare

LO-5: Identify groups who benefit and are hurt by market interventions

1. The difference between what someone is willing to pay for a good or service and the price of the good or service is
   1. A price floor
   2. A price ceiling
   3. A consumer surplus
   4. A producer surplus

LO-1

Level: Easy

1. The difference between the price at which a seller is willing and able to sell a given good and the actual price received for the good is
   1. A price floor
   2. A price ceiling
   3. A consumer surplus
   4. A producer surplus

LO-1

Level: Easy

1. The sum of the consumer surplus and the producer surplus is
   1. A price floor
   2. A price ceiling
   3. A market failure
   4. An economic surplus

LO-1

Level: Easy

1. The loss in economic surplus that results from disequilibrium market outcomes is
   1. A deadweight loss
   2. A market failure
   3. A consumer surplus
   4. A producer surplus

LO-1

Level: Easy

1. The vertical interpretation of a supply relationship describes the
   1. Minimum amount a producer is willing to accept to sell a good or service
   2. Maximum amount a producer is willing to accept to sell a good or service
   3. Marginal benefit of producing the good
   4. Marginal cost of consuming a good

LO-1

Level: Moderate

1. An upper limit on the price of a good or service is a
   1. Price floor
   2. Price ceiling
   3. Consumer surplus
   4. Producer surplus

LO-3

Level: Easy

1. A lower limit on the price of a good or service is a
   1. Price floor
   2. Price ceiling
   3. Consumer surplus
   4. Producer surplus

LO-3

Level: Easy

1. This sets the minimum amount that can be charged for a good or service.
   1. Price floor
   2. Price ceiling
   3. Consumer surplus
   4. Producer surplus

LO-3

Level: Easy

1. The effect of a quota is to
   1. Increase consumer surplus
   2. Increase consumer surplus
   3. Reduce consumer surplus
   4. Reduce producer surplus

LO-2

Level: Easy

1. One reason why quotas are not removed is
   1. There is often insufficient incentive to pressure the government
   2. There is no cost to consumers
   3. Government officials believe that they are important to the economy
   4. Consumers feel they are necessary for market efficiency.

LO-3

Level: Difficult

1. A quota is intended to
   1. Increase production of goods and services
   2. Enhance trade
   3. Restrict the production of goods and services
   4. Increase the quality of goods and services

LO-4

Level: Easy

Reference:

Figure 1

1. Consider Figure 1. Consumer surplus at the equilibrium price is
   1. $20
   2. $40
   3. $80
   4. $120

LO-2

Level: Moderate

1. Consider Figure 1. Producer surplus at the equilibrium price is
   1. $20
   2. $40
   3. $80
   4. $120

LO-2

Level: Moderate

1. Consider Figure 1. Economic surplus at the equilibrium price is
   1. $20
   2. $40
   3. $80
   4. $120

LO-2

Level: Moderate

1. Consider Figure 1. If the government would impose a minimum price of $10 what is the amount of the consumer surplus?
   1. $10
   2. $20
   3. $50
   4. $80

LO-2

Level: Difficult

1. Consider Figure 1. If the government would impose a minimum price of $10 what is the amount of the producer surplus?
   1. $10
   2. $20
   3. $50
   4. $80

LO-2

Level: Difficult

1. When considering the imposition of a price minimum of $10 in Figure 1, the group that will benefit the most is
   1. Consumers
   2. Producers
   3. Both consumers and producers
   4. None, the net gain is zero

LO-5

Level: Difficult

1. Consider Figure 1. If the government would impose a price ceiling of $6 what is the amount of the consumer surplus?
   1. $10
   2. $20
   3. $50
   4. $80

LO-2

Level: Difficult

1. When considering the imposition of a price ceiling of $6 in Figure 1, the group that will benefit the most is
   1. Consumers
   2. Producers
   3. Both consumers and producers
   4. None, the net gain is zero

LO-5

Level: Difficult

1. In Figure 1 which of the following statements is true?
   1. When a price intervention, such as a price ceiling or floor, is imposed economic surplus increases
   2. When a price intervention, such as a price ceiling or floor, is imposed economic surplus decreases
   3. When a price intervention, such as a price ceiling or floor, is imposed economic surplus remains the same
   4. When a price intervention, such as a price ceiling or floor, is imposed economic surplus is proportionate to the change in price

LO-4

Level: Difficult

1. Suppose the market equilibrium price of widgets is $10. The following table lists the willingness to pay for the four consumers in the market.

Total consumer surplus is

1. $20
2. $17
3. $14
4. $2

LO-2

Level: Difficult

1. The net benefit to sellers earn from selling a good or service is called a
   1. Consumer surplus
   2. Producer surplus
   3. Economic surplus
   4. Economic efficiency

LO-1

Level: Easy

1. The net benefit from receiving a good is called a
   1. Consumer surplus
   2. Producer surplus
   3. Economic surplus
   4. Economic efficiency

LO-1

Level: Easy

Reference:

Figure 2

1. Consider Figure 2. If 500 widgets are produced
   1. Economic surplus is eliminated
   2. Economic surplus is increased
   3. A deadweight loss occurs
   4. The deadweight loss is eliminated

LO-4

Level: Difficult

1. You tell your friend that you like your new jacket so much that you would have paid more for it. You are describing the concept of
   1. Economic surplus
   2. Total surplus
   3. Producer surplus
   4. Consumer surplus

LO-2

Level: Moderate

1. Consider Figure 2. If a price intervention of $25 is imposed this would be called
   1. A price ceiling
   2. A price floor
   3. A maximum price
   4. A mistake

LO-1

Level: Easy

1. Consider Figure 2. If a price intervention of $15 is imposed this would be called
   1. A price ceiling
   2. A price floor
   3. A maximum price
   4. A mistake

LO-1

Level: Easy

1. Consider Figure 2. If a price intervention of $25 is imposed this would result in a deadweight loss because of
   1. Underproduction
   2. Overproduction
   3. Increasing consumer surplus
   4. Decreasing producer surplus

LO-4

Level: Difficult

Reference:

Figure 3

1. Consider Figure 3. If the market price is at equilibrium, area A + E + B equals
   1. Economic surplus
   2. Consumer surplus
   3. Producer surplus
   4. Deadweight loss

LO-2

Level: Difficult

1. Consider Figure 3. At a price of $25, the deadweight loss is represented by area
   1. D + F + C
   2. E + F
   3. E + F + B +C
   4. B + C

LO-2

Level: Difficult

1. You decide to hire a tutor to help prepare for your graduate entrance exam. Your willingness to pay is provided in the following table.

The tutor you hire initially charges $20 per hour, but changes her fee to $30 per hour after learning that more time is needed.

1. At the initial price of $20, what is
   1. Consumer surplus
   2. Producer surplus
2. At the price of $30 per hour, how many hours of tutoring will be achieved?
3. At the price of $25, what is
   1. Consumer surplus
   2. Producer surplus
4. How does economic surplus compare for both prices? Comment on any difference.
   1. $15. $10 for the 1^st hour plus $5 for the second hour
   2. $15. $10 for the 1^st hour plus $5 for the second hour
5. At $30 per hour, there will be one hour of tutoring
6. 1. $5
   2. $10
7. When the price changes from $20 to $25 consumer surplus and producer surplus decreases. Both consumers and producers loose benefits as society realizes a deadweight loss.

LO-2, 3, 4, 5

Level: Difficult

1. Define consumer surplus and producer surplus and explain their role in public policy evaluation.

LO-4

Level: Difficult