Economic Surplus and Competitive Equilibrium Quiz
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Questions and Answers

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?

    <p>Subsidies decrease the deadweight loss in the market</p> Signup and view all the answers

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

    <p>Imposing a corrective tax on the activity causing the externality</p> Signup and view all the answers

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

    <p>Firms are price takers and cannot influence the market price</p> Signup and view all the answers

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

    <p>Economic surplus</p> Signup and view all the answers

    In a competitive equilibrium, when does economic efficiency occur?

    <p>When the last unit is valued equally by consumers and producers</p> Signup and view all the answers

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

    <p>It decreases</p> Signup and view all the answers

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

    <p>Competitive equilibrium</p> Signup and view all the answers

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

    <p>Marginal cost of each additional unit</p> Signup and view all the answers

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

    <p>It decreases from area A to areas B and C</p> Signup and view all the answers

    What does producer surplus measure?

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

    Which area on the graph represents producer surplus?

    <p>The area above the supply curve and below the equilibrium price</p> Signup and view all the answers

    What does economic efficiency in a market refer to?

    <p>Both A and C</p> Signup and view all the answers

    What is the relationship between consumer surplus and producer surplus?

    <p>The relationship depends on the specific market conditions</p> Signup and view all the answers

    Which of the following is true about a competitive market?

    <p>It maximizes both consumer surplus and producer surplus</p> Signup and view all the answers

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

    <p>To address market failures and externalities</p> Signup and view all the answers

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