Multiple Choice Questions
1. In a supply and demand graph, the triangular area under the demand curve but above the market price is
a. The consumer surplus.
b. The producer surplus.
c. The marginal cost.
d. The deadweight loss.
e. The net gain to society from trading that good.
Use the following demand schedule to answer questions 2 and 3.
Fred’s demand schedule for DVDs is as follows: At $30 each, he would buy 1; at $25, he would buy 2; at $15, he would buy 3; and at $10, he would buy 4.
2. If the price of DVDs is $20, the consumer surplus Fred receives from purchasing two DVDs would be
a. $10.
b. $15.
c. $20.
d. $55.
e. $90.
3. If the price of DVDs is $25, the consumer surplus Fred receives from purchasing one DVD would be
a. $0.
b. $5.
c. $25.
d. $55.
e. $70.
4. Which of the following is not true about consumer surplus?
a. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.
b. Consumer surplus is shown graphically as the area under the demand curve but above the market price.
c. An increase in the market price due to a decrease in supply will increase consumer surplus.
d. A decrease in market price due to an increase in supply will increase consumer surplus.
5. Which of the following is not true about producer surplus?
a. Producer surplus is the difference between what sellers are paid and their cost of producing those units.
b. Producer surplus is shown graphically as the area under the market price but above the supply curve.
c. An increase in the market price due to an increase in demand will increase producer surplus.
d. All of the above are true about producer surplus.
6. At the market equilibrium price and quantity, the total welfare gains from trade are measured by
a. The total consumer surplus captured by consumers.
b. The total producer surplus captured by producers.
c. The sum of consumer surplus and producer surplus.
d. The consumer surplus minus the producer surplus.
7. In a supply and demand graph, the triangular area under the demand curve but above the supply curve is
a. The consumer surplus.
b. The producer surplus.
c. The marginal cost.
d. The deadweight loss.
e. The net gain to society from trading that good.
8. In a supply and demand graph, the triangular area between the demand curve and the supply curve lost because of the imposition of a tax, price ceiling, or price floor is
a. The consumer surplus.
b. The producer surplus.
c. The marginal cost.
d. The deadweight loss.
e. The net gain to society from trading that good.
9. Taxes on goods with ______________ demand curves will tend to raise more tax revenue for the government than taxes on goods with ______________ demand curves.
a. Elastic; unit elastic
b. Elastic; inelastic
c. Inelastic; elastic
d. Unit elastic; inelastic
10. After the imposition of a tax,
a. Consumers pay a higher price, including the tax.
b. Consumers lose consumer surplus.
c. Producers receive a lower price after taxes.
d. Producers lose producer surplus.
e. All of the above occur.