While producing less than the competitive output decreases social welfare, the same cannot be said about producing more than the competitive output. Indicate whether the statement is true or false ANSWER False. When more than the competitive output is produced each unit sold cost more than it is valued at. This reduces social welfare […]
Deadweight loss occurs when A) producer surplus is greater than consumer surplus. B) the maximum level of total welfare is not achieved. C) consumer surplus is reduced. D) an inferior good is consumed. ANSWER B
Economists claim that measuring society’s welfare as CS + PS A) is inappropriate since ultimately everyone is a consumer. B) is valid only when the same person could be either a consumer or a producer. C) treats the gains to consumers and producers equally. D) is not commonly accepted. ANSWER C
Measuring society’s welfare as 2*CS + 0.5*PS A) gives heavier weight to consumer gains. B) gives heavier weight to producer gains. C) treats the gains to consumers and producers equally. D) treats gains and losses with different weight. ANSWER A
If an economist states that not enough of a good is being produced, she usually means that A) not everyone can afford the good. B) price exceeds marginal cost. C) consumer surplus equals zero. D) at equilibrium, some people who still wish to sell the good cannot find a buyer. ANSWER B
The change in total welfare from a 10% increase in price will depend only on the elasticity of demand. Indicate whether the statement is true or false ANSWER False. The effect of a price change also depends on revenue changes.
Producer surplus is the sum of the profits earned by all firms in a market. Indicate whether the statement is true or false ANSWER False. This definition ignores fixed costs. Producer surplus minus fixed costs equals profits.
An individual’s ________ surplus is the area ________ the ________ curve and ________ the ________ up to the quantity ________. A) consumer; above; supply; below; market price, produced. B) producer; above; supply; below; market price, produced. C) consumer; below; demand; above; choke price, purchased. D) producer; below; supply; choke price, below; the producer sells. […]
Which of the following expressions can be used to calculate the producer surplus (PS)? A) PS = profit output B) PS = profit + fixed cost C) PS = variable cost – fixed cost D) PS = average cost output ANSWER D
Producer surplus is equal to A) the area under the supply curve. B) the difference between price and average cost for all units sold. C) the difference between price and marginal cost for all units sold. D) the firm’s profit when fixed costs exist. ANSWER C
