Sample Quiz

Multiple Choice

1. A situation is efficient if

a. no change can help some people without hurting others.

b. the gain for some people offsets the loss for others.

c. the gain for some people more than offsets the loss to others.

d. consumer surplus is maximized.

e. producer surplus is maximized.

2. Assume I bring 30 cookies into a class with 30 students. Which of the following situations is Pareto efficient?

a. I give one cookie to each student.

b. I give all 30 cookies to one student.

c. I divide all of the cookies equally among the female students.

d. I let the best 15 students have 2 cookies each.

e. all of the above

3. If a market is not in equilibrium, which of the following is always true?

a. The quantity exchanged is below equilibrium quantity.

b. The quantity exchanged is above equilibrium quantity.

c. The price is above the equilibrium price.

d. The price is below the equilibrium price.

e. No transaction can be made that will benefit both a buyer and seller.

4. Total economic surplus is

a. the sum of all the individual economic surpluses gained by buyers and sellers in a market.

b. the sum of producer and consumer surplus in a market.

c. maximized at market equilibrium.

d. a measure that can be used to determine efficiency.

e. all of the above

5. A price ceiling

a. prevents sellers from charging less than a certain amount.

b. leads to efficiency in the market.

c. must be above equilibrium price to have an effect on the market.

d. results in a loss in total economic surplus.

e. all of the above

6. A policy that reduces total economic surplus

a. changes who gets the largest slice of the pie.

b. gives everyone a larger slice of the pie.

c. increases the size of the pie.

d. redistributes a pie of equal size.

e. makes society better off (improves the taste of the pie).

7. Rent controls will

a. increase consumer surplus, but not producer surplus.

b. increase producer surplus, but not consumer surplus.

c. increase both consumer and producer surplus.

d. decrease both consumer and producer surplus.

e. vary in their effect, depending on the specific market.

8. A price floor

a. guarantees that suppliers will receive at least a specified amount for their product.

b. guarantees that consumers will pay at least a specified amount for a product.

c. increases total economic surplus.

d. leads to economic efficiency.

e. creates a shortage in the market.

9. Which policy is most efficient when dealing with overbooked airline flights?

a. first-come, first-served policy

b. compensation policy

c. a price ceiling

d. a price floor

e. random selection

10. If the government places a tax on sellers in a market, who will pay the tax?

a. only sellers

b. more the sellers than buyers

c. buyers and sellers equally

d. only buyers

e. it depends on the situation in the market

Problems/Short Answer

1. Assume a tax of $10 per unit is placed on sellers in the market for bicycles. Use the supply and demand functions below to find each of the following;

P = 150 P = 300 - 7.5 Q

Where P is in dollars and Q is in millions of bicycles.

a. consumer surplus before the tax.

b. consumer surplus after the tax.

c. the loss in consumer surplus from the tax.

d. How does deadweight loss from the tax compare to the loss in consumer surplus in this particular situation? Explain.

2. Use a graph to show the effect of a price ceiling on total economic surplus. Be sure to identify consumer and producer surplus before and after the price ceiling using your graph.