Chapter 8 — Quiz

Multiple choice

Q1. Consumer surplus is: a) The total amount consumers spend on a good b) The maximum a consumer would pay for a good c) The difference between what a consumer would pay and what they actually pay d) The producer's profit

Q2. Producer surplus is: a) The seller's total revenue b) The seller's total cost c) The difference between what the seller actually receives and the minimum the seller would accept d) The producer's profit margin

Q3. Total surplus is: a) Consumer surplus minus producer surplus b) Consumer surplus plus producer surplus c) Consumer surplus times producer surplus d) The price times the quantity

Q4. In a perfectly competitive market with no externalities, the equilibrium: a) Always benefits buyers more than sellers b) Always benefits sellers more than buyers c) Maximizes total surplus d) Has no relationship to surplus

Q5. Deadweight loss is: a) The amount of revenue the government collects from a tax b) The value of trades that don't happen because of an intervention c) The total surplus before the intervention d) The difference between consumer and producer surplus

Q6. When a tax is imposed on a good, total surplus: a) Rises b) Falls c) Stays the same d) Cannot be determined

Q7. The deadweight loss of a tax is larger when: a) Supply and demand are more elastic b) Supply and demand are more inelastic c) The good is a necessity d) The tax is small

Q8. "Pareto efficient" means: a) Fair and equitable b) The same as "fair" c) No one can be made better off without making someone else worse off d) Maximum revenue is collected

Q9. A "Pareto improvement" is: a) Any policy change b) A change that makes at least one person better off without making anyone worse off c) A change that helps the poor at the expense of the rich d) A perfect policy

Q10. The efficiency-equity tradeoff describes: a) The conflict between profit and revenue b) The tension between maximizing total welfare and distributing it fairly c) The tradeoff between supply and demand d) The trade-off between short-run and long-run

Q11. Why might a perfectly efficient tax system be regressive? a) Because it is designed to hurt the poor b) Because inelastic goods, which are best to tax for efficiency, are often necessities consumed disproportionately by lower-income households c) Because it's based on income alone d) It cannot be regressive

Q12. A market in which a monopolist captures all the consumer surplus would be: a) Pareto efficient (no one can be made better off without making someone else worse off, in some technical sense) b) Equitable c) Both efficient and equitable d) Neither efficient nor equitable

Short answer

SA1. Define consumer surplus in your own words.

SA2. Define producer surplus in your own words.

SA3. Why does a binding price ceiling create deadweight loss?

SA4. Distinguish efficiency from equity in two sentences.

SA5. Why do economists prefer to tax inelastic goods when revenue is needed?

True / False

TF1. Total surplus is always positive in a market that operates voluntarily. (True / False)

TF2. A Pareto-efficient outcome is always fair. (True / False)

TF3. A tax can never increase total surplus. (True / False)

TF4. A market in equilibrium maximizes total surplus, even with externalities. (True / False)

TF5. The deadweight loss of a tax depends on the elasticity of supply and demand. (True / False)

Selected answers in appendices/answers-to-selected.md.