Q: Which formula correctly represents consumer surplus for a single unit purchased?

$$\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid}$$

Q: Which equation correctly represents producer surplus for a single unit sold?

$$\text{Producer Surplus} = \text{Price Received} - \text{Cost to Seller}$$

Question 1

Suppose the market price for a concert ticket is \$$80. Alice is willing to pay up to \120$$, Bob up to \$$100, and Carol up to \70. $$What is the total consumer surplus in this market if only two tickets are available?

Accepted Answer

$$\60$

Question 2

Which of the following best describes 'producer surplus'?

Accepted Answer

The difference between the price sellers receive and the minimum price they are willing to accept, summed over all units sold.

Question 3

A seller is willing to sell a good for \$$50, but the market price is \80. $$What is the producer surplus for this seller?

Accepted Answer

$$\30$

Question 4

If the demand curve for a product is downward sloping and the supply curve is upward sloping, what area on the graph represents total surplus?

Accepted Answer

The area between the demand and supply curves, from zero up to the equilibrium quantity.

Question 5

Which formula correctly represents consumer surplus for a single unit purchased?

Accepted Answer

$$	ext{Consumer Surplus} = 	ext{Willingness to Pay} - 	ext{Price Paid}$$

Question 6

A new tax increases the price of a legal drug. Addicts are still willing to pay the higher price, but some casual users stop buying. What happens to consumer surplus?

Accepted Answer

Consumer surplus decreases, especially for those who stop buying.

Question 7

If the market price rises from \$$60 to \90$$, which of the following is true regarding producer surplus?

Accepted Answer

Producer surplus increases, as existing sellers gain more and new sellers may enter the market.

Question 8

Which of the following best defines the 'reservation price' for a seller?

Accepted Answer

The minimum price at which a seller is willing to sell a good.

Question 9

Suppose a market has the following sellers and their costs: Seller A: \$$40, Seller B: \60$$, Seller C: \$$80. If the market price is \70$$, what is the total producer surplus?

Accepted Answer

$$\30$

Question 10

Which of the following statements is correct regarding the relationship between total surplus and market efficiency?

Accepted Answer

Total surplus is maximized at the equilibrium price and quantity, indicating market efficiency.

Question 11

A consumer is willing to pay \$$100 for a product, but the market price is \120. $$What is the consumer surplus for this consumer?

Accepted Answer

$$0$$

Question 12

If a government sets a price ceiling below the equilibrium price, what is the likely effect on total surplus?

Accepted Answer

Total surplus decreases due to the creation of deadweight loss.

Question 13

Which equation correctly represents producer surplus for a single unit sold?

Accepted Answer

$$	ext{Producer Surplus} = 	ext{Price Received} - 	ext{Cost to Seller}$$

Question 14

A market for a new smartphone opens. The area under the demand curve and above the price line up to the quantity sold represents:

Accepted Answer

Total consumer surplus.

Question 15

If a new seller enters the market with a lower cost than existing sellers, what is the effect on producer surplus?

Accepted Answer

Producer surplus increases, as the new seller can earn surplus at the market price.

Question 16

Which of the following is NOT a correct statement about consumer surplus?

Accepted Answer

Consumer surplus is maximized when the price is set above equilibrium.

Question 17

Suppose the market price for a good is \$$50. A seller's cost is \30. If $$the seller sells 3 units, what is the total producer surplus for this seller?

Accepted Answer

$$\60$

Question 18

If the area under the demand curve up to quantity $$Q is$$ $$A$$, and the total expenditure is $$P 	imes Q$$, what is the formula for total consumer surplus?

Accepted Answer

$$A - (P 	imes Q)$$

Question 19

A market for a legal drug is analyzed. Addicts are willing to pay a high price, while casual users are only willing to pay a low price. If the price increases, what happens to the composition of consumer surplus?

Accepted Answer

Consumer surplus becomes concentrated among addicts, as casual users exit the market.

Question 20

Which of the following best explains why total surplus is a measure of market efficiency?

Accepted Answer

It captures the total net benefit to both consumers and producers from market transactions.

Consumer and Producer Surplus in Microeconomics

Study Guide - Practice Questions

Study Guide - Flashcards