Economic Surplus and Competitive Equilibrium Quiz

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What is the primary purpose of rent control policies?

To make landlords better off

To make tenants better off (correct)

To ensure market efficiency

To address negative externalities

Which of the following best describes consumer surplus?

The difference between the lowest price a firm would be willing to accept and the price it actually receives

The cost to society of a negative externality

The amount of tax revenue collected by the government

The difference between the highest price a consumer is willing to pay and the actual price they pay (correct)

Which of the following is an example of a positive externality?

The cost of subsidies provided by the government

Air pollution from a factory

The benefits to society from a well-educated population (correct)

Noise pollution from a construction site

How do subsidies affect market efficiency?

Subsidies decrease the deadweight loss in the market Signup and view all the answers

Which of the following is the MOST effective government policy for addressing a negative externality?

Imposing a corrective tax on the activity causing the externality Signup and view all the answers

Which of the following is a key characteristic of a competitive market?

Firms are price takers and cannot influence the market price Signup and view all the answers

What term is used to describe the total net benefit to consumers and firms in economics?

Economic surplus Signup and view all the answers

In a competitive equilibrium, when does economic efficiency occur?

When the last unit is valued equally by consumers and producers Signup and view all the answers

What happens to consumer surplus when a market is not in equilibrium?

It decreases Signup and view all the answers

Which concept results in the maximization of economic surplus in a market?

Competitive equilibrium Signup and view all the answers

What does the supply curve describe in relation to the market for chai tea?

Marginal cost of each additional unit Signup and view all the answers

What happens to consumer surplus when the price of chai tea increases from $2.00 to $2.20?

It decreases from area A to areas B and C Signup and view all the answers

What does producer surplus measure?

The total benefit received by producers from participating in a market Signup and view all the answers

Which area on the graph represents producer surplus?

The area above the supply curve and below the equilibrium price Signup and view all the answers

What does economic efficiency in a market refer to?

Both A and C Signup and view all the answers

What is the relationship between consumer surplus and producer surplus?

The relationship depends on the specific market conditions Signup and view all the answers

Which of the following is true about a competitive market?

It maximizes both consumer surplus and producer surplus Signup and view all the answers

What is the primary purpose of corrective taxes or subsidies in a market?

To address market failures and externalities Signup and view all the answers