A Quick Microeconomics Knowledge Test!
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Questions and Answers
- 1.
If the market is in equilibrium, the consumer surplus earned by the buyer of the 100th unit is
- A.
$0.50
- B.
$0.75
- C.
$1.50
- D.
$2.00
- E.
$2.75
Correct Answer
B. $0.75Explanation
In a market in equilibrium, the consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. The buyer of the 100th unit would be willing to pay up to $0.75 more for the product, but they are actually paying the market price. Therefore, the consumer surplus earned by the buyer of the 100th unit is $0.75.Rate this question:
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- 2.
If the market is in equilibrium, the producer surplus earned by the seller of the 100th
- A.
$0.50
- B.
$0.75
- C.
$1.50
- D.
$2.00
- E.
$2.75
Correct Answer
C. $1.50Explanation
In a market in equilibrium, the producer surplus represents the difference between the price at which the seller is willing to supply a product and the actual market price. In this case, the seller of the 100th unit is earning a producer surplus of $1.50, which means that they are willing to supply the product at a price $1.50 higher than the market price. This surplus is earned due to the seller's ability to sell the 100th unit at a higher price than their cost of production, resulting in additional profit.Rate this question:
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- 3.
If the market is in equilibrium, total consumer surplus is
- A.
$1
- B.
$3
- C.
$200
- D.
$400
- E.
$600
Correct Answer
C. $200Explanation
If the market is in equilibrium, it means that the quantity demanded by consumers is equal to the quantity supplied by producers. At this point, the price is also at its equilibrium level. Total consumer surplus is the difference between the total amount that consumers are willing to pay for a product and the total amount they actually pay at the equilibrium price. In this case, the consumer surplus is $200, indicating that consumers are benefiting by $200 in total from the equilibrium market conditions.Rate this question:
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- 4.
Refer to Figure 1 If the market is in equilibrium, total producer surplus is
- A.
$2
- B.
$3
- C.
$200
- D.
$400
- E.
$600
Correct Answer
D. $400Explanation
In Figure 1, the equilibrium point represents the point where the quantity demanded equals the quantity supplied. At this point, both consumers and producers are satisfied with the market price. Total producer surplus is the area above the supply curve and below the market price. In this case, the area of producer surplus is $400.Rate this question:
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- 5.
If the market is in equilibrium, total consumer and producer surplus is
- A.
$0
- B.
$4
- C.
$5
- D.
$600
- E.
$800
Correct Answer
D. $600Explanation
In an equilibrium market, the quantity demanded by consumers is equal to the quantity supplied by producers, resulting in an optimal allocation of resources. At this point, the total consumer surplus represents the difference between what consumers are willing to pay for a good or service and what they actually pay, while the total producer surplus represents the difference between the price at which producers are willing to sell a good or service and the price they actually receive. If the total consumer and producer surplus is $600, it means that both consumers and producers are benefiting from the transaction, with consumers paying less than their maximum willingness to pay and producers receiving more than their minimum acceptable price.Rate this question:
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- 6.
Refer to Figure 1 If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold?
- A.
200
- B.
300
- C.
400
- D.
600
- E.
800
Correct Answer
A. 200Explanation
If the government establishes a price ceiling of $1.00, it means that the price of berries cannot exceed $1.00. Looking at Figure 1, we can see that at a price of $1.00, the quantity demanded is 200 pounds of berries. This is the maximum quantity that consumers are willing and able to buy at that price. Therefore, 200 pounds of berries will be sold if the government establishes a price ceiling of $1.00.Rate this question:
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- 7.
If the government establishes a price ceiling of $1.00, consumer surplus will
- A.
Fall by $50
- B.
Fall by $150
- C.
Remain the same
- D.
Rise by $50
- E.
Rise by $150
Correct Answer
E. Rise by $150Explanation
If the government establishes a price ceiling of $1.00, it means that the maximum price at which a good or service can be sold is $1.00. This will result in a lower price for consumers, leading to an increase in consumer surplus. Consumer surplus is the difference between the maximum price that consumers are willing to pay for a good or service and the actual price they pay. With a lower price ceiling, consumers will be able to purchase the good or service at a price that is $150 higher than they were willing to pay, resulting in an increase in consumer surplus by $150.Rate this question:
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- 8.
If the government establishes a price ceiling of $1.00, producer surplus will
- A.
Fall by $150
- B.
Fall by $300
- C.
Remain the same
- D.
Rise by $150
- E.
Rise by $300
Correct Answer
B. Fall by $300Explanation
If the government establishes a price ceiling of $1.00, it means that the maximum price at which a good or service can be sold is $1.00. This will result in a decrease in the price that producers can charge for their goods. As a result, the producer surplus, which is the difference between the price at which producers are willing to sell a good and the price they actually receive, will decrease. In this case, the producer surplus will fall by $300.Rate this question:
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- 9.
If the government establishes a price ceiling of $1.00, the resulting dead weight loss will be
- A.
$1.50
- B.
$200
- C.
$150
- D.
$300
- E.
$600
Correct Answer
C. $150Explanation
A price ceiling is a government-imposed limit on how high a price can be charged for a product or service. In this case, the price ceiling is set at $1.00. The deadweight loss refers to the loss of economic efficiency that occurs when the equilibrium quantity and price are distorted by government intervention. In this scenario, the deadweight loss is $150, which means that there is a loss of economic efficiency due to the price ceiling.Rate this question:
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- 10.
If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be
- A.
$1.50
- B.
$300
- C.
$450
- D.
$500
- E.
$600
Correct Answer
C. $450Explanation
If the government establishes a price ceiling of $1.00, it means that the price cannot exceed $1.00. This will result in a lower price for consumers, which will increase consumer surplus. However, it will also lead to a decrease in producer surplus as producers are unable to sell their goods at a higher price. The total consumer and producer surplus will be the sum of the increased consumer surplus and the decreased producer surplus. In this case, the total surplus will be $450.Rate this question:
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- 11.
Consumer surplus measures
- A.
The extra amount that a consumer must pay to obtain a marginal unit of a good or service.
- B.
The excess demand that consumers have when a price ceiling holds prices below their equilibrium.
- C.
The benefit that consumers receive from a good or service beyond what they pay.
- D.
Gain or loss to consumers from price fixing.
Correct Answer
C. The benefit that consumers receive from a good or service beyond what they pay.Explanation
Consumer surplus measures the benefit that consumers receive from a good or service beyond what they pay. It represents the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. This surplus reflects the additional value or satisfaction that consumers gain from the product, indicating their overall welfare. It is calculated by subtracting the price paid from the maximum price the consumer is willing to pay. A higher consumer surplus indicates greater satisfaction and welfare for consumers.Rate this question:
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- 12.
Producer surplus is measured as the
- A.
Area under the demand curve above market price
- B.
Entire area under the supply curve
- C.
Area under the demand curve above the supply curve
- D.
Area above the supply curve up to the market price
Correct Answer
D. Area above the supply curve up to the market priceExplanation
Producer surplus is measured as the area above the supply curve up to the market price. This is because producer surplus represents the difference between the price at which producers are willing to supply a good and the actual market price. The area above the supply curve up to the market price represents the additional revenue that producers receive by selling their goods at a price higher than their cost of production. Therefore, this is the correct measurement of producer surplus.Rate this question:
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- 13.
Dead weight loss refers to
- A.
Losses in consumer surplus associated with excess government regulations.
- B.
Situations where market prices fail to capture all of the costs and benefits of a policy.
- C.
Net losses in total surplus.
- D.
Losses due to the policies of labor unions.
Correct Answer
C. Net losses in total surplus.Explanation
Dead weight loss refers to net losses in total surplus. This occurs when the allocation of resources in a market is not efficient, resulting in a decrease in overall economic welfare. It is caused by market distortions such as taxes, subsidies, or regulations that create a gap between the equilibrium quantity and the socially optimal quantity. Dead weight loss represents the value of foregone gains that could have been achieved if resources were allocated efficiently. It is a measure of the inefficiency and economic welfare loss caused by market imperfections.Rate this question:
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- 14.
When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to ______________ and the quantity demanded to ______________.
- A.
Fall; rise
- B.
Fall; fall
- C.
Rise; rise
- D.
Rise; fall
Correct Answer
A. Fall; riseExplanation
When the government imposes an effective price ceiling in a competitive market, it means that they set a maximum price that can be charged for a particular good or service. This price ceiling is typically set below the equilibrium price, which is the price at which the quantity supplied equals the quantity demanded.
As a result, when a price ceiling is imposed, the quantity supplied by producers will fall because they are unable to charge the higher equilibrium price. At the same time, the quantity demanded by consumers will rise because the lower price incentivizes them to purchase more of the good or service. Therefore, the correct answer is "fall; rise."Rate this question:
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- 15.
Which of the following policies could lead to a deadweight loss?
- A.
Price ceilings
- B.
Price floors
- C.
Policies prohibiting human cloning
- D.
All of the above
- E.
(a) and (b) only
Correct Answer
D. All of the aboveExplanation
All of the above policies could lead to a deadweight loss. Price ceilings, which set a maximum price for a good or service, can result in shortages and inefficient allocation of resources. Price floors, which set a minimum price, can lead to surpluses and inefficiency. Policies prohibiting human cloning can restrict scientific advancements and potential benefits, resulting in a loss of potential gains. Therefore, all three policies can cause deadweight loss by distorting market outcomes and reducing overall welfare.Rate this question:
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Mar 21, 2023Quiz Edited by
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