Chapter 7: Consumers, Producers, and the Efficiency of Markets - Questions

What does economic welfare measure?

a) Government spending

b) Consumer and producer surplus

c) Only producer surplus

d) Only consumer surplus

b) Consumer and producer surplus

How is consumer surplus calculated?

a) Area below the equilibrium price

b) Area above the equilibrium price

c) Difference between demand and supply

d) Total revenue minus total cost

b) Area above the equilibrium price

Who will leave the market first if prices rise?

a) The buyer with the lowest willingness to pay

b) The buyer with the highest willingness to pay

c) The producer with the lowest cost

d) The producer with the highest cost

a) The buyer with the lowest willingness to pay

How is producer surplus calculated?

a) Area above the equilibrium price

b) Area below the equilibrium price

c) Difference between total cost and total revenue

d) Supply minus demand

b) Area below the equilibrium price

What is the total surplus in a market?

a) Sum of consumer and producer surplus

b) Only consumer surplus

c) Only producer surplus

d) Government revenue

a) Sum of consumer and producer surplus

What does economic efficiency mean?

a) The government controls prices

b) Resources are allocated in the most effective way

c) Firms always make the highest profit

d) Consumers always pay the lowest price

b) Resources are allocated in the most effective way

What does "laissez-faire" suggests?

a) Government control over markets

b) Free market with minimal government intervention

c) Economic regulation

d) Producer surplus maximization

b) Free market with minimal government intervention

What is market power?

a) The ability to influence prices in the market

b) The ability to set production costs

c) The total supply of a good

d) Government tax policies

a) The ability to influence prices in the market

What is market failure?

a) When goods and services are not efficiently allocated

b) When consumer surplus is higher than producer surplus

c) When only producers benefit from the market

d) When government controls prices

a) When goods and services are not efficiently allocated

The ________ surplus is the difference between the market price and the minimum price a seller is willing to accept.

Producer

_______ is the sum of consumer and producer surplus.

Total surplus

The _______ buyer will leave the market first if prices rise.

Marginal

________ refers to distributing economic prosperity equally among society.

Equity

_________ refers to the ability to influence prices in the market.

Market power

__________ happens when goods and services are not optimally distributed.

Market failure

A ________ surplus is calculated as the area below the equilibrium price.

Producer

A ________ surplus is calculated as the area above the equilibrium price.

Consumer

What is consumer surplus?

The difference between the price a consumer is willing to pay and which he pays.

How is total surplus calculated?

The sum of consumer surplus and producer surplus.

What happens when a price ceiling is set below equilibrium price?

A shortage occurs because demand exceeds supply.

What happens when a price floor is set above equilibrium price?

A surplus occurs because supply exceeds demand.

What is producer surplus?

The difference between the price which the seller receives and the price which he is willing to accept.